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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, l996 Commission File Number 0-10756
FINANCIAL TRUST CORP
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2229155
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification Number)
1415 Ritner Highway, Carlisle, Pennsylvania 17013
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(Address or principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (717) 243-8003
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, Par Value $5.00 Per Share
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(Title Of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of l934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 21, 1997:
Common Stock, $5.00 Par Value - $328,590,707
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Indicate the number of shares outstanding of each issuer's classes of common
stock, as of February 21, 1997:
Common Stock, $5.00 Par Value - 8,532,131
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<PAGE>
PART I
ITEM 1. BUSINESS
Financial Trust Corp (often hereinafter the "Corporation") is a bank holding
company registered under the Bank Holding Company Act of 1956, as amended. It
was incorporated as "Financial Trans Corp." under the laws of Pennsylvania on
May 7, 1982, and commenced business on November 3, 1982, by acquiring all of the
issued and outstanding common stock of Farmers Trust Company, Carlisle,
Pennsylvania ("Farmers"). On July 20, 1984, it became a multi-bank holding
company with the acquisition of Chambersburg Trust Company, Chambersburg,
Pennsylvania ("Chambersburg Trust"). On May 16, 1985, the Corporation's name was
changed to Financial Trust Corp. In late 1985 Financial Trust Life Insurance
Company, the Corporation's first non-banking subsidiary, was established. On
November 2, 1987, Firstway Financial, Inc. was merged into the Corporation and
its wholly owned subsidiary, First National Bank and Trust Co., Waynesboro,
Pennsylvania ("First National") was acquired. On June 1, 1990, First Federal
Savings Bank, Hanover, Pennsylvania ("First Federal"), a federally chartered
savings association, was acquired. On September 30, 1995, the Corporation
acquired Washington County National Bank ("Washington County") located in
Williamsport, Maryland. On June 19, 1995, Farmers Trust Company's name was
changed to Financial Trust Company ("Financial Trust"). In a corporate
reorganization, on October 30, 1995, First Federal Savings Bank was converted to
a state chartered commercial bank named First Bank of Hanover, Pennsylvania and
subsequently merged into Financial Trust Company. Financial Trust Services
Company ("Financial Trust Services"), a wholly-owned subsidiary was formed and
began operations on October 2, 1995. The trust operations of the commercial bank
affiliates were transferred to the newly formed company.
Financial Trust Corp is organized as a financial holding company which operates
through its subsidiaries to deliver financial and related services to its
customers. The Corporation's primary function is to direct the policies and
coordinate the financial resources of its subsidiaries to provide various
technical and advisory services in connection with operations, accounting,
auditing, data processing, human resources management, marketing and new
business development. The Corporation employed 110 full time and 28 part time
persons at year end. All Corporate employees provide services shared by all
subsidiaries.
The Corporation has authorized capital of 16,000,000 shares of common stock,
$5.00 par value. As of December 31, 1996, the Corporation had 8,532,131 shares
of common stock outstanding and approximately 3,503 shareholders of record.
Financial Trust Company
Headquartered in Carlisle, Pennsylvania, Financial Trust Company engages in a
general commercial and retail banking business and offers a full range of
banking services to its customers, including several types of checking and
savings accounts, certificates of deposit, and commercial, consumer, and
mortgage loans.
-1-
<PAGE>
As of December 31, 1996, Financial Trust operated twenty-eight full-service and
drive-up banking offices, sixteen in Cumberland County, four in York County,
three in Perry County, two in Dauphin County, two in Adams County and one in
Lancaster County. Financial Trust also operates seven remote service facilities,
which are automated teller machines located on convenience store properties, on
a college campus, in a hospital lobby and in a truck plaza.
The principal office is located at 1 West High Street, Carlisle. This building
and fifteen branch offices are owned by Financial Trust Company. In addition,
twelve branch offices are leased by the Bank, as more fully described in Item 2
of this Form 10-K.
Financial Trust is not dependent upon a single customer, or a small number of
customers, the loss of which would have a materially adverse effect on Financial
Trust Corp or Financial Trust Company. Its market area is a highly competitive
one, not only with other commercial banks, but with numerous savings and loan
associations, credit unions, and other financial institutions. In addition,
major retailers compete for loans through credit cards and retail installment
contracts. Financial Trust employed 167 full-time and 57 part-time persons at
year end.
Chambersburg Trust Company
Headquartered in Chambersburg, Pennsylvania, Chambersburg Trust Company engages
in a general commercial and retail banking business and offers a full range of
banking services to its customers, including several types of checking and
savings accounts, certificates of deposit, and commercial, consumer, and
mortgage loans.
As of December 31, 1996, Chambersburg Trust operated seven full service offices,
one drive-up office and four remote service facilities, all in Franklin County.
The principal office is located at 14 North Main Street, Chambersburg. This, as
well as four of the eight branch offices are owned; the remaining three branch
offices are leased and are located in a supermarket and other shopping areas.
Chambersburg Trust is not dependent upon a single customer, or a small number of
customers, the loss of which would have a materially adverse effect upon the
Bank or the Corporation. Its market area is highly competitive, not only with
other commercial banks, but with numerous savings and loan associations, credit
unions, and other financial institutions. In addition, major retailers compete
for loans through credit cards and retail installment contracts. The Bank
employed 55 full-time and 34 part-time persons at year end.
-2-
<PAGE>
First National Bank and Trust Co.
Headquartered in Waynesboro, Pennsylvania, First National Bank and Trust Co.
engages in a general commercial and retail banking business and offers a full
range of banking services to its customers, including several types of checking
and savings accounts, certificates of deposit, and commercial, consumer, and
mortgage loans.
As of December 31, 1996, First National operated four full service offices, all
in Franklin County, and three remote service facilities. The principal office is
located at 13 West Main Street, Waynesboro. All four offices are owned and
occupied entirely by the Bank.
First National is not dependent upon a single customer, or a small number of
customers, the loss of which would have a materially adverse effect upon the
Bank or the Corporation. Its market area is highly competitive, not only with
other commercial banks, but with numerous savings and loan associations, credit
unions, and other financial institutions. In addition, major retailers compete
for loans through credit cards and retail installment contracts. The Bank
employed 45 full-time and 19 part-time persons at year end.
Washington County National Bank
Headquartered in Williamsport, Maryland, Washington County National Bank engages
in a general commercial and retail banking business and offers a full range of
banking services to its customers, including several types of checking and
savings accounts, certificates of deposit, and commercial, consumer, and
mortgage loans.
As of December 31, 1996, Washington County operated nine full service offices,
all in Washington County. The principal office is located at 14 West Potomac
Street, Williamsport. All nine offices are owned and occupied entirely by the
Bank.
Washington County is not dependent upon a single customer, or a small number of
customers, the loss of which would have a materially adverse effect upon the
Bank or the Corporation. Its market area is highly competitive, not only with
other commercial banks, but with numerous savings and loan associations, credit
unions, and other financial institutions. In addition, major retailers compete
for loans through credit cards and retail installment contracts. The Bank
employed 62 full-time and 12 part-time persons at year end.
Financial Trust Services Company
Headquartered in Carlisle, Pennsylvania, Financial Trust Services Company
provides personal and corporate trust and agency services to individuals,
corporations and others. These services include trust investment accounts,
investment advisory service, estate planning and the management of pension and
profit sharing plans.
Financial Trust Services leases office space from Financial Trust Corp (Parent)
and subsidiary banks and employed 18 full-time and 3 part-time persons at year
end.
-3-
<PAGE>
Financial Trust Life Insurance Company
Incorporated in 1985 under the laws of the State of Arizona, Financial Trust
Life Insurance Company reinsures the credit life and disability insurance
written by the banking subsidiaries' installment loan departments. A
wholly-owned subsidiary of Financial Trust Corp, this company became active in
January, 1986.
SUPERVISION AND REGULATION
Securities Regulation
The Corporation is under the jurisdiction of the Securities and Exchange
Commission and of state securities commissions for matters relating to the
offering and sale of its securities. In addition, the Corporation is subject to
the Securities and Exchange Commission's rules and regulations relating to
periodic reporting, proxy solicitation, and insider trading.
Bank Holding Company Regulation
The Corporation is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended ("the Act"), as such it is subject to primary
regulation by the Board of Governors of the Federal Reserve System ("the Federal
Reserve"). Bank holding companies are required to file periodic reports with and
are subject to examination by the Federal Reserve. The Federal Reserve has
issued regulations under the Act that require a bank holding company to serve as
a source of financial and managerial strength to its subsidiary banks. As a
result, the Federal Reserve, pursuant to such regulations, may require the
Corporation to stand ready to use its resources to provide adequate capital
funds to its subsidiary banks during periods of financial stress or adversity.
The Act prohibits the Corporation from acquiring direct or indirect control of
more than 5% of the outstanding shares of any class of voting stock or
substantially all of the assets of any bank or merging or consolidating with
another bank holding company without prior approval of the Federal Reserve.
Additionally, the Act prohibits the Corporation from engaging in or from
acquiring ownership or control of more than 5% of the outstanding shares of any
class of voting stock of any company engaged in a nonbanking business unless
such business is determined by the Federal Reserve to be so closely related to
banking as to be a proper incident thereto. Under the Act, the Federal Reserve
has the authority to require a bank holding company to terminate any activity or
relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a
bank) upon the Federal Reserve's determination that such activity or control
constitutes a serious risk to the financial soundness and stability of any bank
subsidiary of the bank holding company.
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<PAGE>
Subsidiary Regulation
All four banking subsidiaries are subject to regulation and supervision, of
which regular bank examinations are a part. Financial Trust Company and
Chambersburg Trust Company are state chartered banks subject to examination by
the Pennsylvania Department of Banking and the Federal Deposit Insurance
Corporation ("FDIC"), as are all insured Pennsylvania bank and trust companies
which are not members of the Federal Reserve System. First National Bank and
Trust Co. and Washington County National Bank, as federally chartered banks and
members of the Federal Reserve System, are subject to examination by the Office
of the Comptroller of the Currency, as are all national banks. All four banking
subsidiaries are members of the FDIC, which currently insures deposits to a
maximum of $100,000 per depositor. For this protection, each bank pays a
quarterly statutory assessment and is subject to the rules and regulations of
the FDIC.
Financial Trust Services Company is subject to Federal Reserve and Pennsylvania
Department of Banking regulation and supervision. Financial Trust Life Insurance
Company is subject to regulation and supervision by the Federal Reserve and the
Department of Insurance of the State of Arizona.
Examinations
Financial Trust Corp and its banking subsidiaries are subject to periodic
examinations by one or more of the various regulatory agencies. During 1996, a
number of examinations were conducted at banking subsidiaries. These
examinations included, but were not limited to, procedures designed to review
lending practices, credit quality, liquidity, compliance, operations, and
capital adequacy of the Corporation and its susidiaries. No comments were
received from the various regulatory bodies which, if implemented, would have a
material effect on Financial Trust Corp's liquidity, capital resources, or
operations.
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<PAGE>
FDIC Insurance Assessments
The FDIC has implemented a risk-related premium schedule for all insured
depository institutions that results in the assessment of premiums based on
capital and supervisory measures. Under the risk-related premium schedule, the
FDIC assigns, on a semiannual basis, each institution to one of three capital
groups (well capitalized, adequately capitalized or undercapitalized) and
further assigns such institution to one of three subgroups within a capital
group. The institution's subgroup assignment is based upon the FDIC's judgment
of the institution's strength in light of supervisory evaluations, including
examination reports, statistical analyses and other information relevant to
gauging the risk posed by the institution. Only institutions with a total
capital to risk-adjusted assets ratio of 10.00% or greater, a Tier 1 capital to
risk-adjusted assets ratio of 6.0% or greater and a Tier 1 leverage ratio of
5.0% or greater, are assigned to the well-capitalized group. All of the
Corporation's subsidiary banks qualify as well capitalized.
Environmental Laws
Environmentally related hazards have become a source of high risk and potential
liability for financial institutions relating to their loans. Environmentally
contaminated properties owned by an institution's borrowers may result in a
drastic reduction in the value of the collateral securing the institution's
loans to such borrowers, high environmental clean up costs to the borrower
affecting its ability to repay the loans, the subordination of any lien in favor
of the institution to a state or federal lien securing clean up costs, and
liability to the institution for clean up costs if it forecloses on the
contaminated property or becomes involved in the management of the borrower. The
Corporation is not aware of any borrower who is currently subject to any
environmental investigation or clean up proceeding which is likely to have a
material adverse affect on the financial condition or results of operations of
the Corporation.
Interstate Banking
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Law"), amended various federal banking laws to provide for
nationwide interstate banking, interstate bank mergers and interstate branching.
The interstate banking provisions allow for the acquisition by a bank holding
company of a bank located in another state. Interstate bank mergers and branch
purchase and assumption transactions will be allowed effective June 1, 1997;
however, states may "opt-out" of the merger and purchase and assumption
provisions by enacting a law which specifically prohibits such interstate
transactions. States may, in the alternative, enact legislation to allow
interstate merger and purchase and assumption transactions prior to June 1,
1997. States may also enact legislation to allow for de novo interstate
branching by out of state banks. In July of 1995, Pennsylvania adopted "opt in"
legislation permitting transactions which result in interstate branching and de
novo interstate branching at the present time.
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<PAGE>
EXECUTIVE OFFICERS OF THE CORPORATION
The following information is included in conformity with Instruction 3 of Item
401(b) of SEC Regulation S-K:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Ray L. Wolfe 58 Chairman and CEO (since 1995),
President and CEO (1982-1995);
Chairman (since 1995), President
(1975-1995) and Vice Chairman
of the Board (1981-1995), Financial
Trust Company
Peter C. Zimmerman 50 President and Chief Operations
Officer (since 1995), Senior
(1991-1995) Vice President
(1989-1995) and Secretary
(1982-1991);
President and CEO (since 1991),
Chambersburg Trust Company;
Executive (1989-1991) Vice
President (1977-1991) and
Secretary (1975- 1991), Financial
Trust Company.
Bradley S. Everly 45 Senior Vice President (since 1995),
Chief Financial Officer (since 1989),
Secretary (1994-1995) and
Treasurer (1989-1995).
Lynn S. Baker 46 Senior Vice President (since 1990);
Executive Vice President (since
1991) Financial Trust Company;
President (1987-1991) First
Federal Savings Bank
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<PAGE>
Name Age Position
- ---- --- --------
Dennis C. Caverly 62 Senior Vice President (since 1991),
Vice President (1982-1991);
Chairman and CEO (since 1995),
President (1991-1995) and
Executive Vice President (1989
through 1990) First National Bank
and Trust Co.;
President (since 1995), Financial
Trust Services Company
William H. Kiick 61 Senior Vice President (since 1991);
President and CEO (since 1995),
Financial Trust Company;
President (1991-1995), First Federal
Savings Bank
M.L. Patterson, Jr. 66 Senior Vice President (since 1995);
President and CEO (since 1979)
and Vice Chairman of the Board
(since 1991) Washington County
National Bank
Robert E. Rahal 35 Senior Vice President (since 1996);
President (since 1995) and
Executive Vice President
(1994-1995) First National Bank
and Trust Co.; Senior Vice
President and Chief Lending
Officer (1991-1994) Financial Trust
Company
</TABLE>
None of the above has any family relationship with any other person so named,
and there are no arrangements or understandings between any executive officer
and any other person pursuant to which any person was selected as an officer.
Officers are elected each year at the reorganization meeting of the Board of
Directors following the Annual Meeting of Shareholders.
-8-
<PAGE>
STATISTICAL DATA
The following tables and other information present for the reported period
statistical information for the Corporation and its subsidiaries on a
consolidated basis. This information should be read in conjunction with the
audited consolidated financial statements, Management's Discussion and Analysis
of Financial Condition and Results of Operations and the Selected Financial Data
of the Corporation included elsewhere in this report:
A. Distribution of Assets, Liabilities and Shareholders' Equity; Interest
Rates and Interest Differential
Refer to Part II, Item 7, page 18 of this report.
B. Investment Portfolio
Refer to Part II, Item 7, pages 18, 20, 21 and 27 and Part II, Item 8,
pages 37 and 38 of this report.
C. Loan Portfolio
Refer to Part II, Item 7, pages 18, 20, 23, 24, 25, 26 and 27 and Part
II, Item 8, page 39 of this report.
Risk Elements
Nonaccrual and Restructured Loans
Refer to Part II, Item 7, page 25 and Part II, Item 8, page 39 of
this report.
Potential Problem Loans
At December 31, 1996, the Corporation had $312,000 in loans
within its loan portfolio that could be considered "potential
problem loans". Such loans are characterized as loans for
which payments are current, but the borrowers are currently
experiencing severe financial difficulties.
The Corporation was not engaged in any highly leveraged
transactions (HLT) as of December 31, 1996.
Foreign Outstandings
At December 31, 1996, the Corporation did not have any loans
outstanding to any foreign entity or government.
-9-
<PAGE>
Loan Concentrations
Management is not aware of any loan concentration in the loan
portfolio to borrowers engaged in the same or similar
industries that would exceed 10% of total loans.
Other Interest Bearing Assets
The Corporation has no interest bearing assets, apart from
loans, that meet the non-accrual, past due, restricted or
potential problem loan criteria.
D. Summary of Loan Loss Experience
Refer to Part II, Item 7 pages 24 and 25 and Part II, Item 8
page 39 of this report.
E. Deposits
Refer to Part II, Item 7 pages 18, 21, 26 and 27 and Part II,
Item 8 page 40 of this report.
F. Return on Equity and Assets
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C> <C>
(1) Return on assets 1.70% 1.64% 1.53%
(2) Return on equity 14.01% 13.81% 13.52%
(3) Dividend payout ratio 40.63% 37.40% 37.72%
(4) Equity to assets ratio 12.14% 11.85% 11.35%
Other Equity Ratios
December 31
---------------------------------------- Regulatory
1996 1995 1994 Minimum
---- ---- ---- -------
(1) Tier I capital ratio 18.79% 18.54% 17.51% 4.0%
(2) Total (Tier II) capital ratio 20.03% 19.78% 18.76% 8.0%
(3) Leverage ratio 11.64% 11.42% 10.70% 4.0%
</TABLE>
G. Short-Term Borrowings
Refer to Part II, Item 7 page 22 and Part II, Item 8 page 41
of this report.
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<PAGE>
ITEM 2. PROPERTIES
Financial Trust Corp
The Corporation is headquartered at 1415 Ritner Highway in Carlisle,
Pennsylvania. The corporate headquarters is owned free and clear of any
indebtedness. In addition, the Corporation owns an operations center located at
310 Allen Road in Carlisle, Pennsylvania. In 1985 the Corporation entered into
an agreement with the Cumberland County Industrial Development Authority and a
commercial bank to provide financing for a substantial portion of the operation
center. Under the agreement monthly payments are due until maturity in
November, 2000.
Financial Trust Company
The principal executive office and main banking office of Financial Trust
Company is located at 1 West High Street, Carlisle, PA. This and the following
fifteen branch offices are owned by Financial Trust Company, free and clear of
any indebtedness:
(1) Noble Boulevard & South West Street, Carlisle, PA
(2) 3805 Trindle Road, Camp Hill, PA
(3) 433 S. 18th Street, Camp Hill, PA
(4) 7 Center Square, New Bloomfield, PA
(5) 216 S. Carlisle St., New Bloomfield, PA
(6) 19 East Main Street, New Kingstown, PA
(7) 631 Holly Pike, Mt. Holly Springs, PA
(8) 120 S. Union Street, Middletown, PA
(9) 1601 W. Harrisburg Pike, Middletown, PA
(10) 104 S. Market Street, Elizabethtown, PA
(11) 100 Frederick Street, Hanover, PA
(12) 1055 Baltimore Street, Hanover, PA
(13) 105 Chambersburg Street, Gettysburg, PA
(14) 14 West Hanover Street, Bonneauville, PA
(15) 401 East King Street, Shippensburg, PA
The following eleven full service offices, one drive-up office and the sites for
seven remote service facilities (RSF's) are leased from various lessors under
varying terms and conditions:
(1) 1958 Spring Road, Carlisle, PA
(2) Carlisle Plaza Mall, Carlisle, PA
(3) 5303 E. Simpson Ferry Road, Mechanicsburg, PA
(4) 5 Village Square Plaza, Shermans Dale, PA
(5) 6520 Carlisle Pike, Mechanicsburg, PA
(6) 960 Walnut Bottom Road, Carlisle, PA (land leased)
(7) 4 N. U.S. Highway Route #15, Dillsburg, PA (land leased)
(8) 457 Eisenhower Drive, Hanover, PA
(9) 802 Lisburn Road, Mechanicsburg, PA
(10) 1415 Ritner Highway, Carlisle, PA (drive-up office leased
from Parent Corporation)
(11) 100 South Spring Garden Street, Carlisle, PA
(12) One Forge Road, Boiling Springs, PA
(13) Pa. Rt. 641, Plainfield, PA (RSF)
(14) 246 Parker Street, Carlisle Hospital, Carlisle, PA (RSF)
(15) Holland Union Building, Dickinson College, Carlisle, PA (RSF)
(16) 1201 Harrisburg Pike, Carlisle, PA (RSF)
(17) 1098 Harrisburg Pike, Carlisle, PA (RSF)
(18) 1415 S. Market Street, Mechanicsburg, PA (RSF)
(19) Baltimore & Steinwehr Streets, Gettysburg, PA (RSF)
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<PAGE>
Chambersburg Trust Company
The principal executive office and main banking office of Chambersburg Trust
Company is located at 14 North Main Street, Chambersburg, PA. This and the
following four branch offices are owned by Chambersburg Trust Company, free and
clear of any indebtedness:
(1) 278 Lincoln Way East, Chambersburg, PA
(2) 1798 Lincoln Way East, Chambersburg, PA
(3) 643 E. Baltimore Street, Greencastle, PA
(4) 3628 Scotland Main Street, Chambersburg, PA
The following two full service offices, one drive-up office and the sites for
four remote service facilities (RSF's) are leased from various lessors under
varying terms and conditions:
(1) South Gate Mall, Chambersburg, PA
(2) 993 Wayne Avenue, Chambersburg, PA
(3) 915 Wayne Avenue, Chambersburg, PA (drive-up office)
(4) 1080 Lincoln Way West, Chambersburg, PA (RSF)
(5) 1175 Stouffer Avenue, Chambersburg, PA (RSF)
(6) 76 West Liberty Street, Chambersburg, PA (RSF)
(7) 112 N. Seventh Street, Chambersburg, PA (RSF)
First National Bank and Trust Co.
The principal executive office and main banking office of First National Bank
and Trust Co. is located at 13 West Main Street, Waynesboro, PA. This and the
following three branch offices are owned by First National Bank and Trust Co.,
free and clear of any indebtedness:
(1) 13102 Monterey Lane, Blue Ridge Summit, PA
(2) 1501 E. Main Street, Wayne Heights Mall, Waynesboro, PA
(3) 5006 Buchanan Trail East, Zullinger, PA
The following sites for First National Bank and Trust Co.'s three remote service
facilities (RSF's) are leased from various lessors under varying terms and
conditions:
(1) Pennsylvania State University's Campus, Mont Alto, PA (RSF)
(2) 102 East Main Street, Waynesboro, PA (RSF)
(3) Wesley Drive, Quincy Village, Quincy, PA (RSF)
-12-
<PAGE>
Washington County National Bank
The principal executive office and main banking office of Washington County
National Bank is located at 14 West Potomac Street, Williamsport, MD. This and
the following eight branch offices are owned by Washington County National Bank,
free and clear of any indebtedness:
(1) 307 East Potomac Street, Williamsport, MD
(2) 10721 Fairway Lane, Hagerstown, MD
(3) 121 South Main Street, Clear Spring, MD
(4) 19 South Main Street, Keedysville, MD
(5) 7620 Old National Pike, Boonsboro, MD
(6) 103 West Main Street, Sharpsburg, MD
(7) 17345 Virginia Avenue, Hagerstown, MD
(8) 1101 Professional Court, Hagerstown, MD
The Corporation believes that all properties and equipment are well maintained,
adequate for present needs and in good condition. The total annual rental under
all real estate leases did not exceed 5% of the Corporation's operating expenses
during the past fiscal year.
ITEM 3. LEGAL PROCEEDINGS
Neither the Corporation nor its subsidiaries are parties to any material legal
proceedings other than ordinary routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1996 to a vote of security
holders, through the solicitation of proxies or otherwise.
-13-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
MARKET AND DIVIDEND INFORMATION
The common stock of Financial Trust Corp is traded on the Nasdaq National
Market tier of The Nasdaq Stock Market under the symbol FITC. At the close of
business on December 31, 1996 there were approximately 3,503 shareholders of
record, with a total of 8,532,131 shares outstanding. The table below sets forth
the range of high and low quarterly sales prices and dividends declared per
common share.
<TABLE>
<CAPTION>
1996 1995
-------------------------------------- -----------------------------------
Quarterly Quarterly
Market Price Dividend Market Price Dividend
High Low Declared High Low Declared
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $28.18 $26.59 $0.23 $26.36 $24.32 $0.21
Second Quarter 29.25 27.27 0.23 25.45 24.32 0.21
Third Quarter 29.00 26.00 0.25 26.82 24.32 0.21
Fourth Quarter 40.75 26.75 0.25 28.64 26.14 0.22
----- ----- ---- ----- ----- ----
$0.96 $0.85
==== ====
</TABLE>
<TABLE>
<S> <C>
NASDAQ MARKET MAKERS NASDAQ MARKET MAKERS
The Chicago Corporation Sandler O'Neill & Partners, L.P.
208 South LaSalle Street, Chicago, IL 60604 2 World Trade Center, 104th Floor, New York, NY 10048
(312) 855-7600 (212) 466-7700
(800) 635-6875
Fahnestock & Co., Inc.
110 Wall Street, New York, NY 10005 Tucker Anthony Incorporated
(212) 422-7813 One Beacon Street, Boston, MA 02108
(617) 725-2000
Ferris Baker Watts, Inc.
100 Light Street - 9th Floor, Baltimore, MD 21202 Wheat First, Butcher, Singer
(800) 638-7411 901 E. Byrd St., Richmond, VA 23219
(804) 649-2311
Herzog, Heine, Geduld, Inc.
525 Washington Blvd., Jersey City, NJ 07310
(212) 962-0300 INVESTOR INFORMATION
Janney Montgomery Scott, Inc. FORM 10-K
1801 Market Street, Philadelphia, PA 19103 Shareholders may obtain copies of the
(215) 665-6000 Corporation's Annual Report on Form
(800) 526-6397 10-K, as filed with the Securities and
Exchange Commission, without charge
Legg Mason Wood Walker, Inc. upon written request to Mr. Bradley S.
1 Battery Park Plaza, New York, NY 10005 Everly, Senior Vice President & CFO,
(212) 428-4949 Financial Trust Corp, P.O. Box 220,
Carlisle, PA 17013.
F.J. Morrissey & Co.
1700 Market St., Suite 1420, Philadelphia, PA 19103 TRANSFER AGENT
(215) 563-8500 The Transfer Agent for Financial Trust
Corp is Financial Trust Services Company,
Ryan, Beck & Co. 310 Allen Rd., P.O. Box 220, Carlisle,
80 Main Street, West Orange, NJ 07052 PA 17013.
(201) 325-3000
</TABLE>
Certain restrictions exist regarding the ability of the banking subsidiaries to
transfer funds to the Corporation in the form of cash dividends, loans or
advances. At December 31, 1996, approximately $76,725,000 of undistributed
earnings of the banking subsidiaries was available for distribution to the
Corporation as dividends without prior approval of regulatory authorities.
Additionally, under Federal Reserve regulation, the banking subsidiaries are
limited as to the amount they loan or advance to the Corporation unless such
loans or advances are collateralized by specific obligations. At December 31,
1996, the maximum amount available for transfer from subsidiaries to the
Corporation in the form of unsecured loans or advances approximated $14,463,000.
-14-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
Year Ended December 31 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Summary of Operations
Interest income $ 88,899 $ 82,855 $ 73,692 $ 70,648 $ 76,486
Interest expense 36,543 34,196 27,679 26,698 34,214
Net interest income 52,356 48,659 46,013 43,950 42,272
Provision for loan losses 855 709 840 3,640 2,800
Net interest income after provision for loan losses 51,501 47,950 45,173 40,310 39,472
Securities gains 315 472 144 38 192
Other income 8,537 7,344 7,148 6,827 6,127
Other expenses 33,686 31,496 30,610 28,031 25,991
Income before income taxes 26,667 24,270 21,855 19,144 19,800
Applicable income taxes 6,636 6,135 5,426 5,182 4,780
Income before cumulative effect of an accounting
change -- operating income 20,031 18,135 16,429 13,962 15,020
Cumulative effect of a change
in an accounting principle -- -- -- 373 --
Net Income $ 20,031 $ 18,135 $ 16,429 $ 14,335 $ 15,020
Per Common Share Data *
Income before cumulative effect
of an accounting change -
operating income $ 2.35 $ 2.12 $ 1.92 $ 1.64 $ 1.77
Net income 2.35 2.12 1.92 1.68 1.77
Cash dividends declared 0.96 0.85 0.79 0.71 0.65
Book value at year-end 17.94 16.52 14.74 13.43 12.36
Average shares outstanding 8,529,233 8,542,257 8,542,923 8,533,175 8,509,146
Stock Price Statistics *
Stock price:
Close $ 39.88 $ 27.50 $ 26.14 $ 29.49 $ 21.07
High 40.75 28.64 31.71 30.00 22.31
Low 26.00 24.32 24.55 19.45 13.84
Stock close/book value at year-end (Book multiple) 2.2 1.7 1.8 2.2 1.7
Stock close/net income per share (PE ratio) 17.0 13.0 13.6 17.6 11.9
Year-End Balance Sheet Data
Assets $1,219,311 $1,138,437 $1,090,576 $ 995,171 $ 964,917
Loans 782,808 731,150 707,495 656,012 635,934
Deposits 962,610 931,720 898,859 836,733 828,687
Short-term borrowings 71,894 53,530 55,844 35,533 24,160
FHLB borrowings 18,274 256 262 -- --
Long-term debt 419 489 549 615 683
Shareholders' Equity 153,099 141,072 125,869 114,737 105,375
Performance Statistics
Return on average assets 1.70% 1.64% 1.53% 1.47% 1.60%
Return on average equity 14.01% 13.81% 13.52% 13.13% 15.10%
Average equity/average assets 12.14% 11.85% 11.35% 11.20% 10.57%
Equity/assets at year-end 12.56% 12.39% 11.54% 11.53% 10.92%
</TABLE>
- -----------------------
*All prior year per common share amounts have been restated to reflect:
The 3 for 2 stock split, in the form of a 50% stock dividend paid June 1,
1992.
The 10% stock dividend paid August 30, 1993.
The 4 for 3 stock split in the form of a 33 1/3% stock dividend paid
August 29, 1994.
The acquisition of Washington County National Bank (WCNB) on September 30,
1995 was accounted for as a pooling-of-interests and required restatement
of the consolidated financial statements for all prior periods to include
the accounts of WCNB.
The 10% stock dividend paid June 17, 1996.
-15-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section presents management's discussion and analysis of the
financial condition and results of operations of Financial Trust Corp and
subsidiaries (the Corporation). Commercial banking subsidiaries include
Financial Trust Company, Chambersburg Trust Company, First National Bank and
Trust Co. and Washington County National Bank. Other primary subsidiaries
include Financial Trust Services Company, a provider of trust services and
Financial Trust Life Insurance Company, a credit life and disability insurance
provider. This discussion and analysis should be read in conjunction with the
financial statements which appear elsewhere in this report.
RECENT CORPORATE ACTIONS
Proposed Merger: On December 19, 1996 Keystone Financial, Inc. (Keystone) signed
a definitive agreement to acquire Financial Trust Corp. Under terms of the
agreement, each share of Financial Trust Corp common stock will be converted
into 1.65 shares of Keystone common stock. The transaction will be accounted for
as a pooling-of-interests and is subject to approval by the shareholders of both
companies and various regulatory authorities. Keystone had assets of
approximately $5.2 billion and shareholders' equity of approximately $507
million at December 31, 1996. Financial Trust Corp's 48 banking offices in
Pennsylvania and Maryland will compliment Keystone's 147 banking offices in
Pennsylvania, Maryland and West Virginia upon consummation of the merger.
Acquisitions: On September 30, 1995, the Corporation acquired all of the
outstanding stock of Washington County National Bank, of Williamsport, Maryland
(WCNB) in exchange for 1,054,576 shares of common stock, along with cash of
$9,000 in lieu of fractional and dissenting shares, consummating the merger
announced in December, 1994. At September 29, 1995, WCNB had total assets,
deposits and equity of $136,181,000, $123,087,000 and $11,949,000, respectively.
The acquisition was accounted for as a pooling-of-interests. Accordingly,
financial data presented for prior periods has been restated to reflect the
acquisition as if it had occurred at the beginning of the periods presented.
On April 8, 1994 the Corporation assumed the insured deposits of Homestead
Federal Savings Association of Middletown, Pennsylvania through a bid process at
an auction conducted by the Resolution Trust Corporation. This transaction
initially increased deposits by $73,600,000 and intangible assets by $6,381,000.
Reorganization: On June 19, 1995, commercial banking subsidiary Farmers Trust
Company's name was changed to Financial Trust Company. On October 30, 1995,
thrift subsidiary First Federal Savings Bank, was converted to a state chartered
commercial bank and merged into Financial Trust Company. Subsequently, Financial
Trust Company sold the former First Federal Savings Bank branch located in
Chambersburg, Pennsylvania to banking subsidiary Chambersburg Trust Company.
On October 2, 1995, a trust subsidiary, Financial Trust Services Company,
was formed with initial capitalization of $2,200,000. The existing trust
operations of all bank subsidiaries were then acquired by Financial Trust
Services Company.
The Corporation increased operating efficiencies and reduced overhead
expenses in both commercial and trust operations as a result of these
restructuring activities. In addition, the Corporation's ability to deliver
trust services has been enhanced.
OVERVIEW
For the year ended December 31, 1996, Financial Trust Corp recorded net
income of $20,031,000, an increase of 10.5% over 1995. Net earnings for 1995
were $18,135,000, an increase of 10.4% over the prior year.
The Corporation's earnings performance continues to be well above peer
group averages as measured by various ratio analyses. Two widely recognized
performance indicators are the return on average assets and the return on
average equity. The return on average assets was 1.70% in 1996, 1.64% in 1995
and 1.53% in 1994. The return on average equity was 14.01% in 1996, 13.81% in
1995, and 13.52% in 1994.
-16-
<PAGE>
NET INTEREST INCOME
Net interest income is the amount by which interest income on earning
assets exceeds interest paid on interest bearing liabilities. The amount of net
interest income is affected by changes in interest rates, account balances or
volume and the mix of earning assets and interest bearing liabilities. Net
interest income is still the primary source of bank profits despite the industry
wide push to enhance noninterest income generation over the past several years.
For the year ended December 31, 1996, net interest income totaled
$52,356,000, an increase of $3,697,000 or 7.6%, over 1995. The 1995 total was
$48,659,000, or 5.8%, over 1994. On a taxable equivalent basis, net interest
income increased by 7.8% in 1996 and 5.8% in 1995. Marginal tax rates used in
the taxable equivalent equation were 35% in all three years presented.
The Corporation's taxable equivalent net interest spread was 4.45% in
1994, 4.41% in 1995 and 4.45% in 1996. Net interest margin, which factors in
noninterest bearing funds sources, has improved from 4.95% to 5.06% to 5.12%,
respectively.
Rate and volume factors both contributed to 1996's net interest income
growth but volume increases accounted for approximately 72% of such growth.
Average daily free funds grew by $17.1 million or 10.1% due primarily to
growth in noninterest bearing demand deposits and retainage of net income.
Interest bearing funds grew by $51.2 million, or 5.9% on an average daily basis.
Disintermediation within the deposit portfolio slowed from 1995's pace but most
growth was realized in the time deposit and purchased funds areas. The
aforementioned funds sources were used to grow average loan balances by $36.7
million, or 5.1%. Loan demand was steady during 1996 but particularly strong in
the commercial and commercial real estate sectors. Average investment security
balances grew by $39.5 million, or 13.1%, due to the need to utilize growth that
loan demand did not use plus the addition of a growth strategy of approximately
$25 million at a subsidiary bank in September, 1996 whereby government
securities were funded with purchased funds.
The 1995 increase in net interest margin was generated through rate and
volume factors of approximately equal amounts. The steady growth of commercial
lending activity including the addition of related noninterest bearing demand
deposits was the most material factor in this growth. Loan demand was strong
during 1995, particularly during the last nine months of the year. This enabled
the Corporation to overcome the effects of disintermediation within the deposit
portfolio as time deposits grew via transfers from lower cost deposit
categories.
-17-
<PAGE>
ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
(1)
AVERAGE BALANCES AND INTEREST RATES (FULLY TAXABLE EQUIVALENT BASIS)
(Dollars in thousands)
1996 1995
------------------------------------ ------------------------------
Average FTE FTE Average FTE FTE
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest Earning Assets:
Federal funds sold
and interest bearing
bank balances $ 4,869 $ 265 5.44% $ 12,805 $ 754 5.89%
---------- ---------- ---- ---------- ------- ----
(2)
Investment Securities:
Taxable investment securities 233,219 14,920 6.40% 207,814 12,495 6.01%
Tax-exempt investment
securities 106,995 8,009 7.49% 92,868 7,235 7.79%
---------- ---------- ---- ---------- ------- ----
Total investment securities 340,214 22,929 6.74% 300,682 19,730 6.56%
---------- ---------- ---- ---------- ------- ----
(3)
Loans:
Taxable loans 720,587 66,135 9.18% 687,864 62,734 9.12%
Tax-exempt loans 36,451 3,651 10.02% 32,456 3,337 10.28%
---------- ---------- ---- ---------- ------- ----
Total loans 757,038 69,786 9.22% 720,320 66,071 9.17%
---------- ---------- ---- ---------- ------- ----
Total Interest
Earning Assets 1,102,121 92,980 8.44% 1,033,807 86,555 8.37%
Noninterest Earning Assets:
Cash and due from banks 36,401 36,537
Other assets 50,701 48,840
Less allowance for loan losses (11,233) (11,284)
---------- ----------
TOTAL $1,177,990 $1,107,900
========== ==========
Liabilities and Shareholders' Equity:
Interest Bearing Liabilities:
Interest bearing demand deposits $ 238,520 $ 5,348 2.24% $ 233,672 $ 5,636 2.41%
Savings deposits 178,122 4,780 2.68% 184,197 5,185 2.81%
Time deposits 431,971 22,997 5.32% 396,196 20,660 5.21%
Other interest bearing liabilities 66,442 3,418 5.14% 49,762 2,715 5.46%
---------- ---------- ---- ---------- ------- ----
Total Interest
Bearing Liabilities 915,055 36,543 3.99% 863,827 34,196 3.96%
Noninterest Bearing Liabilities:
Demand deposits 107,276 101,874
Other 12,638 10,923
---------- ----------
Total Liabilities 1,034,969 976,624
Shareholders' equity 143,021 131,276
---------- ----------
TOTAL $1,177,990 $1,107,900
========== ==========
Net interest income/
net interest spread $ 56,437 4.45% $52,359 4.41%
========== ==== ======= ====
Net interest margin 5.12% 5.06%
==== ====
<CAPTION>
1994
---------------------------------------
Average FTE FTE
Balance Interest Rate
------- -------- ----
Assets:
Interest Earning Assets:
Federal funds sold
and interest bearing
bank balances $ 22,354 $ 904 4.04%
----------- ----------- ----
(2)
Investment Securities:
Taxable investment securities 206,913 12,166 5.88%
Tax-exempt investment
securities 89,464 6,949 7.77%
----------- ----------- ----
Total investment securities 296,377 19,115 6.45%
----------- ----------- ----
(3)
Loans:
Taxable loans 651,737 54,150 8.31%
Tax-exempt loans 29,606 3,008 10.16%
----------- ----------- ----
Total loans 681,343 57,158 8.39%
----------- ----------- ----
Total Interest
Earning Assets 1,000,074 77,177 7.72%
Noninterest Earning Assets:
Cash and due from banks 38,076
Other assets 43,604
Less allowance for loan losses (11,277)
-----------
TOTAL $ 1,070,477
===========
Liabilities and Shareholders' Equity:
Interest Bearing Liabilities:
Interest bearing demand deposits $ 253,890 $ 6,081 2.40%
Savings deposits 202,360 5,721 2.83%
Time deposits 349,760 14,130 4.04%
Other interest bearing liabilities 39,851 1,747 4.38%
----------- ----------- ----
Total Interest
Bearing Liabilities 845,861 27,679 3.27%
Noninterest Bearing Liabilities:
Demand deposits 92,732
Other 10,358
-----------
Total Liabilities 948,951
Shareholders' equity 121,526
-----------
TOTAL $1,070,477
===========
Net interest income/
net interest spread $ 49,498 4.45%
========= ====
Net interest margin 4.95%
====
</TABLE>
-18-
<PAGE>
RATE/VOLUME ANALYSIS (TAXABLE EQUIVALENT BASIS)
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 vs. 1995 1995 vs. 1994
Increase (Decrease) Due to: Increase (Decrease) Due to:
-------------------------------- --------------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Federal funds sold and interest bearing
bank balances $ (432) $ (57) $ (489) $ (562) $ 412 $ (150)
Taxable investment securities 1,625 800 2,425 54 275 329
Tax-exempt investment securities 1,058 (284) 774 265 21 286
Taxable loans 3,003 398 3,401 3,295 5,289 8,584
Tax-exempt loans 400 (86) 314 293 36 329
------- ------- ------- ------- ------- -------
NET CHANGE IN
INTEREST INCOME 5,654 771 6,425 3,345 6,033 9,378
------- ------- ------- ------- ------- -------
Interest Bearing Liabilities:
Interest bearing demand deposits 108 (396) (288) (487) 42 (445)
Savings deposits (163) (242) (405) (510) (26) (536)
Time deposits 1,905 432 2,337 2,419 4,111 6,530
Other 858 (155) 703 541 427 968
------- ------- ------- ------- ------- -------
NET CHANGE IN
INTEREST EXPENSE 2,708 (361) 2,347 1,963 4,554 6,517
------- ------- ------- ------- ------- -------
INCREASE IN NET
INTEREST INCOME $ 2,946 $ 1,132 $ 4,078 $ 1,382 $ 1,479 $ 2,861
======= ======= ======= ======= ======= =======
</TABLE>
(1) Fully taxable equivalent basis (FTE). The federal statutory rate was 35% for
all years presented.
(2) Average balances for securities include SFAS 115 adjustments to fair value.
(3) Nonaccrual loans are included in loan balances. Interest income includes
related fee income.
(4) The change in interest not specifically attributable to rate or volume are
included in rate differences.
-19-
<PAGE>
LOANS
End of year loan totals show an increase of approximately $51,658,000, or
7.1%. Average daily figures show growth of $36,718,000 or 5.1%. Commercial loans
grew by 15.9% and commercial real estate loans grew by 7.6% in 1996. The pool of
commercial related loans grew by $23,897,000, or 10.4% during 1996. This
increase in commercial lending was due primarily to continued strong demand
within certain markets. This demand has allowed the Corporation to increase its
loan portfolio without a change in underwriting standards. The following
schedule is collateral based, therefore loans are reported as being secured by
residential real estate even though they may be for other purposes or include
additional collateral.
COMPOSITION OF LOANS OUTSTANDING
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $ 89,026 $ 76,795 $ 61,832 $ 64,665 $ 67,893
Loans secured by real estate:
Construction 19,672 13,772 11,018 10,320 11,770
Commercial 164,523 152,857 152,749 143,763 136,861
Residential 431,524 414,543 410,459 378,668 347,524
Personal 78,063 73,183 71,437 67,596 71,886
-------- -------- -------- -------- --------
Total $782,808 $731,150 $707,495 $665,012 $635,934
======== ======== ======== ======== ========
</TABLE>
In May, 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 122 "Accounting for Mortgage Servicing
Rights". Companies were required to adopt the new method of accounting for
mortgage servicing rights no later than 1996. The Corporation adopted the new
standard during the first quarter of 1996. The effect of such adoption on the
Corporation's liquidity, capital resources and results of operations has been
immaterial.
INVESTMENT SECURITIES
The Corporation's 1996 investment securities portfolio increased
$36,885,000 or 11.6% as measured by end of year figures. On an average daily
basis, balances grew by $39,532,000, or 13.1%, based upon 1995's average
balances.
Expansion of the investment securities portfolio during 1996 was driven
by deposit and purchased funds growth that exceeded loan growth plus a $25
million growth strategy booked by one of the subsidiary banks that involved the
purchase of government securities funded with purchased funds. The substantial
expansion of the investment portfolio in 1994 was largely attributable to the
assumption, in April, of the Homestead deposit base. Approximately $70,000,000
of deposits were acquired in this transaction but related assets were minimal.
The bulk of these additional funds were invested in U.S. government securities.
Increased loan demand in late 1994 and throughout 1996 have limited the funds
available for utilization in the investment securities portfolio as funds have
been allocated to higher yielding loan categories.
The following table shows the composition of the investment securities
portfolio as of December 31 for each of the past five years. No single issue
represented 10% or more of the entire portfolio at any of the dates presented:
INVESTMENT SECURITIES BY MAJOR CLASSIFICATION
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31 1996 1995 1994 1993 1992
Carrying Value Amount Amount Amount Amount Amount
% % % % %
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
U.S. Treasury and other government $ 225,142 $ 181,784 $ 181,878 $ 128,830 $123,279
agencies 63.6% 57.4% 58.9% 51.4% 49.3%
State and municipal 103,520 108,424 94,770 90,817 88,913
29.3% 34.2% 30.7% 36.3% 35.6%
Other 25,052 26,621 31,941 30,835 37,826
7.1% 8.4% 10.4% 12.3% 15.1%
---------- ---------- ---------- ------- --------
Total $ 353,714 $ 316,829 $ 308,589 $250,482 $250,018
100.0% 100.0% 100.0% 100.0% 100.0%
========== ========== ========== ======= ========
</TABLE>
-20-
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31 1996 1995 1994 1993 1992
Fair Value Amount Amount Amount Amount Amount
% % % % %
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
U.S. Treasury and other government $ 225,142 $ 181,784 $ 176,826 $ 131,662 $126,041
agencies 63.6% 57.4% 58.6% 50.7% 48.8%
State and municipal 103,520 108,424 93,525 93,506 91,262
29.3% 34.2% 31.0% 36.0% 35.4%
Other 25,052 26,621 31,324 34,456 40,757
7.1% 8.4% 10.4% 13.3% 15.8%
---------- ---------- ---------- ------- --------
Total $ 353,714 $ 316,829 $ 301,675 $ 259,624 $258,060
100.0% 100.0% 100.0% 100.0% 100.0%
========== ========== ========== ======= ========
</TABLE>
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard ("SFAS") No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No. 115 requires
management to classify investments in equity securities that have readily
determinable fair values and all investments in debt securities as either
held-to-maturity and reported at amortized cost, available-for-sale and reported
at fair value with unrealized gains and losses reported in a separate component
of shareholders' equity, or trading securities and reported at fair value with
unrealized gains and losses included in earnings. Effective January 1, 1994, the
Corporation adopted SFAS No. 115 and classified all securities as
available-for-sale. Adoption of SFAS No. 115 resulted in a $9,142,000 increase
in investment securities and a $5,942,000 increase in shareholders' equity
accounted for as the cumulative effect of a change in accounting principle. On
April 1, 1994, a significant portion of existing debt securities were classified
as held-to-maturity. At December 31, 1995, $240,490,000 of investment securities
at amortized cost, with unrealized gains of $2,686,000, were transferred from
held-to-maturity to available-for-sale pursuant to the transition provisions of
the FASB staff's Special Report on SFAS No. 115. All securities were classified
as available-for-sale at December 31, 1995 and 1996.
DEPOSITS
Deposit growth was slow but steady in 1996. End of year totals increased
$30,890,000 or 3.3%. Average daily balances grew $39,950,000 or 4.4%. All 1996
growth was internal with no deposit base purchases during the year. The
Corporation continues to rely upon core deposits as its major source of funds.
Core deposits represent noninterest bearing demand deposits, interest bearing
demand deposits, savings deposits and time deposits in amounts less than
$100,000. Core deposits continue to represent over 95% of deposit totals
creating a stable deposit base. The deposit base structure continued to shift in
1996 as time deposits grew at the expense of lower rate savings deposits but the
rate of disintermediation slowed from 1995's pace and interest bearing demand
deposits grew by 4.8%. The following table shows deposit composition as of
December 31 for each of the past five years:
<TABLE>
<CAPTION>
DEPOSITS BY MAJOR CLASSIFICATION
(Dollars in thousands)
1996 1995 1994 1993 1992
Amount Amount Amount Amount Amount
December 31 % % % % %
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Noninterest bearing $ 113,605 $ 111,194 $ 96,955 $ 83,840 $ 81,133
demand deposits 11.8% 11.9% 10.8% 10.0% 9.8%
Interest bearing 243,192 232,056 248,866 245,918 233,178
demand deposits 25.3% 24.9% 27.7% 29.4% 28.1%
Savings deposits 178,760 184,193 204,350 194,905 173,547
18.6% 19.8% 22.7% 23.3% 20.9%
Time deposits 385,080 364,963 316,055 281,591 307,763
under $100,000 40.0% 39.2% 35.2% 33.7% 37.2%
Time deposits 41,973 39,314 32,633 30,479 33,066
of $100,000 or more 4.3% 4.2% 3.6% 3.6% 4.0%
---------- ---------- ---------- ---------- --------
Total $ 962,610 $ 931,720 $ 898,859 $ 836,733 $828,687
100.0% 100.0% 100.0% 100.0% 100.0%
========== ========== ========== ========== ========
</TABLE>
-21-
<PAGE>
SHORT-TERM BORROWINGS
Short-term borrowings consist of repurchase agreements, the Treasury tax
and loan note option program, federal funds purchases, purchases at the Federal
Reserve discount window and the short-term purchase of funds from the Federal
Home Loan Bank. Repurchase agreements are typically written for one to thirty
day periods with rates tied to 91 day Treasury bills. The Treasury tax and loan
funds carry a cost 25 basis points below the prevailing federal funds rate and
are subject to call. The Federal Home Loan Bank programs are overnight advances
at published rates.
Short-term borrowings outstanding at December 31, 1996, consisted of
$71,894,000 predominately from repurchase agreements and $7,325,000 from a FHLB
overnight advance program for a total of $79,219,000 at a rate of approximately
5.12%.
The maximum amounts of borrowings outstanding at any month-end during each
year of the reporting period were as follows:
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Short-term borrowings $77,832 $61,713 $62,168 $32,970 $32,819
Date November 30 January 31 November 30 January 31 October 31
FHLB overnight advances $7,325 -- -- -- --
Date December 31
</TABLE>
Average amounts outstanding and weighted average rates thereon for each
year of the reporting period were as follows:
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Short-term borrowings $58,411 $48,983 $39,154 $23,963 $17,751
Rate 5.11% 5.45% 4.37% 3.19% 3.54%
FHLB overnight advances $3,015 -- -- -- --
Rate 5.34%
</TABLE>
The Corporation's use of purchased funds has grown over the past five years
but such borrowings still represent a relatively minor source of funds.
Short-term borrowings represented 7.5% of our pool of deposits and other
interest bearing funds at December 31, 1996. On an average daily basis all
purchased funds represented 6.5%, 5.1%, 4.2%, 2.8% and 2.1% of the pool of
deposits and other interest bearing funds for 1996, 1995, 1994, 1993, and 1992,
respectively.
NONINTEREST INCOME AND EXPENSES
The Banks historically have been excellent performers regarding the control
of noninterest expenses. Peer efficiency data has shown the Corporation
operating consistently within the top 20% of the industry over the past 5 years.
Noninterest income peer comparisons are not quite as strong but have shown
improvement during 1996 and 1995. The control of net overhead remains a primary
strength of the Corporation as demonstrated by the fully taxable equivalent
efficiency ratios of 50.4%, 51.3% and 52.6% generated for 1996, 1995 and 1994,
respectively. Net overhead comparisons exceed peer levels comfortably and the
percentage of noninterest expense covered by noninterest income has improved at
26.3%, 24.8% and 23.8% for 1996, 1995 and 1994, respectively.
Noninterest income increased $1,036,000, or 13.3%, in 1996. Service charge
and fee schedule changes were effective for 1996 contributing to increases of
$331,000 in service charges on deposit accounts and increases of $242,000 in
other fee income which included bank card fees, ATM fees and loan application
fees. Additionally, other income increased $594,000 due to the realization of
$600,000 in gains on the sale of foreclosed real estate owned.
Noninterest expenses increased $2,190,000, or 7.0%, in 1996. The one time
SAIF recapitalization costs were $699,000 in 1996 on two previously acquired
thrift deposit bases. FDIC deposit insurance premiums decreased to $236,000 in
1996 and are anticipated to be approximately $180,000 during 1997 which includes
the FICO bond and SAIF deposit base assessments. Net occupancy expense increased
$324,000 or 14.4% due to branching activity in late 1995 and 1996.
-22-
<PAGE>
ANALYSES OF NONINTEREST INCOME AND EXPENSES
(Dollars in thousands)
<TABLE>
<CAPTION>
% Change
----------------------------
Year Ended December 31 1996 1995 1994 1996-1995 1995-1994
- ---------------------- ---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
Other income:
Fiduciary income $ 2,396 $ 2,286 $ 2,315 4.8% -1.3%
Service charges on deposit
accounts 2,623 2,292 2,164 14.4% 5.9%
Fee Income 1,790 1,548 1,515 15.6% 2.2%
Secondary market activity (133) 19 (76) N/M N/M
Reinsurance income 598 530 515 12.8% 2.9%
Other income 1,263 669 715 88.8% -6.4%
Net gains - equity securities 325 462 193 -29.7% N/M
Net gains (losses) - debt securities (10) 10 (49) N/M N/M
------- ------- ------- ---- ---
$ 8,852 $ 7,816 $ 7,292 13.3% 7.2%
------- ------- ------- ---- ---
Other expenses:
Salaries $12,624 $11,737 $10,951 7.6% 7.2%
Employee benefits 3,946 3,785 3,684 4.3% 2.7%
Occupancy expense, net 2,568 2,244 2,184 14.4% 2.7%
Furniture and equipment
expenses 2,093 1,889 1,611 10.8% 17.3%
Deposit insurance premiums 236 1,238 1,976 -80.9% -37.3%
SAIF recapitalization 699 0 0 100.0% 0.0%
Data processing 1,659 1,476 1,373 12.4% 7.5%
Printing and supplies 1,127 1,070 801 5.3% 33.6%
Pennsylvania State tax 1,013 964 921 5.1% 4.7%
Other expense 7,721 7,093 7,109 8.9% -0.2%
------- ------- ------- ---- ---
$33,686 $31,496 $30,610 7.0% 2.9%
------- ------- ------- ---- ---
Noninterest income as a
% of noninterest expense 26.3% 24.8% 23.8%
</TABLE>
FEDERAL INCOME TAXES
The Corporation's effective federal income tax rate for 1996 was 24.9%, as
compared to 25.3% in 1995 and 24.8% in 1994. The Corporation's 1997 effective
federal income tax rate is expected to increase to approximately 29% since
taxable income growth is anticipated, all growth will be in the 35% tax bracket
and the use of tax-exempt securities and loans is projected to be limited in
1997.
Bad debt deductions for the commercial banks are based solely on specific
charge-offs. The Corporation elected the cut-off method of accounting for loan
loss reserves and does not currently anticipate a material impact resulting from
recapture of existing commercial bank reserves.
ASSET QUALITY/RISK ANALYSIS
The quality of the Corporation's asset structure continues to be excellent.
Management devotes a substantial amount of time to overseeing the investment of
funds in loans and securities and the formulation of policies directed toward
the minimization of risk associated with such outlays. Asset quality stands out
as the single strongest component of Financial Trust Corp's financial position
when compared to industry peers. Most asset quality ratios exceed the 90th
percentile in peer rankings.
-23-
<PAGE>
Loan Risk Analysis: The Banks follow generally conservative lending
practices and continue to carry high quality loan portfolios with no unusual or
undue concentrations of credit. No loans are extended to non-domestic borrowers
or governments, consistent with past practice and policy. Net charge-offs
historically have been quite low compared to industry standards. Net charge-offs
represented only .09%, .13% and .07% of average outstanding loans in 1996, 1995
and 1994, respectively. Nonperforming loans, as represented by nonaccrual and
restructured items were only .17%, .44% and .49% of outstanding loans at
December 31, 1996, 1995 and 1994, respectively. Loans 90 days or more past due
and still accruing represented .32%, .25% and .33% of outstanding loans at
December 31, 1996, 1995 and 1994, respectively. Loan delinquencies represented
.57%, .97% and .90% of outstanding loans at December 31, 1996, 1995 and 1994.
Allowance for Loan Losses: Historically, the Corporation has had an
enviable record regarding its control of loan losses, but lending is a banking
service that inherently contains elements of risk. In order to assess this risk,
an ongoing loan review process continually evaluates the current financial
condition of commercial borrowers, local and national economic conditions, and
the current level of delinquencies. Through this process, an amount deemed
adequate to meet current growth and future loss expectations is charged to
operations. The provision for loan losses amounted to $855,000, $709,000 and
$840,000 for 1996, 1995 and 1994, respectively. These provisions compared to net
charge-offs of $653,000 in 1996, $939,000 in 1995 and $475,000 in 1994. At
December 31, 1996 and 1995, respectively, the allowance for loan losses
represented 2,572% and 460% of nonaccrual loans. Unallocated reserves at
December 31, 1996 were $5,754,000, representing 51.2% of the total reserve
portion. Unallocated reserves grew by $323,000, or 5.9%, during 1996.
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994 1993 1992
- ---------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Amount of loans outstanding at end of period $782,808 $731,150 $707,495 $665,012 $635,934
======== ======== ======== ======== ========
Daily average loans outstanding $757,038 $720,320 $681,343 $646,443 $618,094
======== ======== ======== ======== ========
Balance of allowance for possible loan losses
at beginning of period $ 11,038 $ 11,268 $ 10,903 $ 7,465 $ 6,294
Loans charged off:
Real Estate - Residential (79) (266) (224) (85) (695)
Real Estate - Commercial (212) (467) (189) 0 0
Commercial (151) (86) (95) (167) (577)
Consumer (371) (260) (210) (334) (529)
-------- -------- -------- -------- --------
Total Charge Offs (813) (1,079) (718) (586) (1,801)
Recoveries of loans previously
charged off:
Real Estate - Residential 20 31 80 15 1
Real Estate - Commercial 35 0 0 0 0
Commercial 19 15 34 204 36
Consumer 86 94 129 165 135
-------- -------- -------- -------- --------
Total Recoveries 160 140 243 384 172
-------- -------- -------- -------- --------
Net loans recovered (charged off) (653) (939) (475) (202) (1,629)
Additions to allowance charged to expense 855 709 840 3,640 2,800
-------- -------- -------- -------- --------
Balance at end of period $ 11,240 $ 11,038 $ 11,268 $ 10,903 $ 7,465
======== ======== ======== ======== ========
Ratio of net charge-offs to average loans
outstanding 0.09% 0.13% 0.07% 0.03% 0.26%
======== ======== ======== ======== ========
Ratio of allowance to gross loans outstanding
at December 31 1.44% 1.51% 1.59% 1.64% 1.17%
======== ======== ======== ======== ========
</TABLE>
-24-
<PAGE>
The allocation of our allowance for loan losses for the years ended
December 31, 1996, 1995, 1994, 1993 and 1992 is as follows:
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-----------------------------------------------------------------------------------------------------------
Percent of Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in Loans in
Each Each Each Each Each
Category Category Category Category Category
Amount to Total Amount to Total Amount to Total Amount to Total Amount to Total
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate $ 5,009 78.6% $ 5,261 79.5% $ 6,168 81.2% $ 4,816 80.1% $4,040 78.0%
Commercial 350 11.4% 224 10.5% 667 8.7% 1,021 9.7% 454 10.7%
Consumer 127 10.0% 122 10.0% 148 10.1% 193 10.2% 124 11.3%
Unallocated 5,754 5,431 4,285 4,873 2,847
------- ------- ------- ------- ------
$11,240 $11,038 $11,268 $10,903 $7,465
======= ======= ======= ======= ======
</TABLE>
Risk Elements: Nonperforming assets are comprised of nonaccrual and restructured
loans and real estate owned other than bank premises (OREO). OREO represents
property acquired through foreclosure or settlements of loans and is carried at
the lower of the principal amount of the loan outstanding at the time acquired
or the estimated fair value of the property. The excess, if any, of the
principal balance at the time acquired over the carrying amount is charged
against the allowance for loan losses.
NONPERFORMING ASSETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31 1996 1995 1994 1993 1992
- ----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans on nonaccrual (cash) basis $ 437 $2,402 $2,298 $2,910 $1,173
Loans whose terms have been renegotiated to provide a
reduction or deferral of interest or principal
because of a deterioration in the financial
position of the borrower 0 0 0 442 138
OREO 891 793 1,158 1,408 1,442
------ ------ ------ ------ ------
Total nonperforming assets $1,328 $3,195 $3,456 $4,760 $2,753
====== ====== ====== ====== ======
Ratio of nonperforming assets to total loans
and OREO 0.17% 0.44% 0.49% 0.71% 0.43%
====== ====== ====== ====== ======
Ratio of nonperforming assets to total assets 0.11% 0.28% 0.32% 0.48% 0.29%
====== ====== ====== ====== ======
OTHER RISK ITEMS
(Dollars in thousands)
December 31 1996 1995 1994 1993 1992
- ----------- ---- ---- ---- ---- ----
Loans past due 90 or more days and still accruing $2,492 $1,803 $2,318 $1,794 $1,353
------ ------ ------ ------ ------
Percentage of total loans and OREO 0.32% 0.25% 0.33% 0.27% 0.21%
====== ====== ====== ====== ======
Percentage of total assets 0.20% 0.16% 0.21% 0.18% 0.14%
====== ====== ====== ====== ======
</TABLE>
The Corporation's loan loss history has been quite good compared to
industry standards and current risk analysis appears favorable. The reserve for
loan losses is consistent with the current composition of the loan portfolio and
adequately covers the risks management sees under present economic conditions.
Management is prepared to make any reserve adjustments that become necessary as
economic conditions change.
-25-
<PAGE>
LIQUIDITY AND RATE SENSITIVITY
The primary function of asset/liability management is to assure adequate
liquidity and rate sensitivity. Liquidity management involves the ability to
meet the cash flow requirements of customers who may be either depositors
wanting to withdraw funds or borrowers needing assurance that sufficient funds
will be available to meet their credit needs. Interest rate sensitivity
management requires the maintenance of an appropriate balance between
interest-sensitive assets and liabilities. Interest-bearing assets and
liabilities that are maturing or repricing should be adequately balanced to
avoid fluctuating net interest margins and to enhance consistent growth of net
interest income through periods of changing interest rates. The Banks have
consistently followed a strategy of pricing assets and liabilities according to
prevailing market rates and matching maturities as prudently as possible, within
the guidelines of sound marketing and competitive practices. The goal is to
maintain a predominantly matched position with very few planned mismatches. Rate
spreads will be sacrificed at times in order to enable the overall rate
sensitivity position to stay within the guidelines called for by asset/liability
management policy. Rate sensitivity is measured by monthly gap analyses plus
periodic simulation and rate shock analyses. Investment and pricing decisions
are made using both liquidity and rate sensitivity analyses as tools. The
schedules that follow reflect the degree to which the Corporation can adjust its
investment portfolios to meet interest rate changes. Additionally, the
Corporation's subsidiary banks are Federal Home Loan Bank (FHLB) members.
Standard credit arrangements available to FHLB members provide the Corporation
with increased liquidity.
ANALYSIS OF LOAN PORTFOLIO
MATURITY AND SENSITIVITY TO CHANGES IN INTEREST RATES
(Dollars in thousands)
<TABLE>
<CAPTION>
Loans Maturing or Repricing
---------------------------------------------------------------------------------
After One After Five After Ten
One Year But Within But Within Years or Not
or Less Five Years Ten Years Rate Sensitive Total
-------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Commercial, Variable $ 92,510 $ 3,651 $ 2,544 $ 0 $ 98,705
Commercial, Fixed 53,901 26,424 15,461 15,021 110,807
Mortgage, Construction 19,673 0 0 0 19,673
Mortgage, Variable 245,948 62,536 0 0 308,484
Mortgage, Fixed 39,736 27,908 14,602 26,139 108,385
Revolving Home Equity
Lines 16,626 0 0 0 16,626
Consumer 61,793 53,213 0 5,122 120,128
-------- -------- ------- ------- --------
Total $530,187 $173,732 $32,607 $46,282 $782,808
======== ======== ======= ======= ========
% of Portfolio 67.7% 22.2% 4.2% 5.9% 100.0%
Time Deposits Maturing or Repricing
---------------------------------------------------------------------------------------------------
After One After Five After
3 Months 3 Months But Within But Within Ten
or Less to 1 Year Five Years Ten Years Years Total
-------- -------- -------- ------ ------ --------
$100,000 or More $ 12,654 $ 15,094 $ 14,025 $ 200 $ 0 $ 41,973
Less than $100,000 148,108 142,900 94,072 0 0 385,080
-------- -------- -------- ------- ------- --------
Total $160,762 $157,994 $108,097 $ $200 $ 0 $427,053
======== ======== ======== ======= ======= ========
% of Portfolio 37.6% 37.0% 25.3% 0.1% 0.0% 100.0%
</TABLE>
Interest rate sensitivity varies with different types of interest earning
assets and interest bearing liabilities. Overnight federal funds on which rates
change daily and loans which are tied to prime rate differ considerably from
long term investment securities and fixed rate loans. Similarly, time deposits
over $100,000 and short term certificates are much more rate sensitive than
passbook savings accounts and long term certificates. The shorter term interest
rate sensitivities are key to measuring the interest sensitivity gap, or excess
of interest earning assets over interest bearing liabilities.
-26-
<PAGE>
The following table shows the interest sensitivity gaps for six different
time intervals as of December 31, 1996. For the first 3 months there is an
excess of interest bearing liabilities over interest earning assets. The
liability sensitivity all arises within the first month and is mitigated
thereafter. A balanced position is achieved, on a cumulative basis, at
approximately 7 months (6 months including investment securities with call
features) and a positive cumulative position, or excess of interest earning
assets over interest bearing liabilities, is maintained through the remaining
time frames but within the confines of Corporation asset/liability management
policy. Interest-sensitive categories represent ranges in which assets and
liabilities can be repriced, not necessarily their actual maturities. After 5
year amounts include assets and liabilities with interest sensitivity of more
than 5 years or with indefinite repricing schedules. Due to the increasing
popularity of investment securities that contain call features, an abbreviated
alternate presentation is provided which reports such securities at their next
call date. This presentation demonstrates an increased asset sensitivity but
still within policy confines.
The table below presents all interest bearing assets and liabilities at
December 31, 1996. Nonaccrual loans are included as nonrate sensitive.
Noninterest bearing assets and liabilities are not included.
RATE SENSITIVITY ANALYSIS AT DECEMBER 31, 1996
(Dollars in millions)
<TABLE>
<CAPTION>
Interest Sensitivity Period
-----------------------------------------------------------------------------------
After After After After After 5
3 Months 6 Months 9 Months 1 Year Years or
Within Within Within Within Within Not Rate
3 Months 6 Months 9 Months 12 Months 5 Years Sensitive Total
-------- -------- -------- --------- ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Rate Sensitive Assets (RSA):
Loans $208 $110 $108 $104 $174 $ 79 $ 783
Investment securities 13 9 12 7 122 191 354
Other earning assets 3 0 0 0 0 0 3
---- ---- ---- ---- ---- ---- ------
Total Rate Sensitive
Assets $224 $119 $120 $111 $296 $270 $1,140
==== ==== ==== ==== ==== ==== ======
Rate Sensitive Liabilities (RSL):
Interest-bearing deposits $232 $ 77 $ 44 $ 39 $108 $349 $ 849
Other interest bearing liabilties 60 2 0 2 26 0 90
---- ---- ---- ---- ---- ---- ------
Total Rate Sensitive
Liabilites $292 $ 79 $ 44 $ 41 $134 $349 $ 939
==== ==== ==== ==== ==== ==== ======
Rate Sensitivity Gap:
Period $(68) $40 $ 76 $ 70 $162 $(79) $ 201
Cumulative (68) (28) 48 118 280 201
---- ---- ---- ---- ---- ----
Gap as a Percent of Total Assets:
Period (5.6)% 3.3 % 6.2% 5.7%
Cumulative (5.6)% (2.3)% 3.9% 9.7%
---- ---- ---- ----
RSA/RSL Cumulative 0.77 0.92 1.11 1.26
==== ==== ==== ====
Rate Sensitivity Gap Modified for Investment Securities with Call Features:
Investment Securities with $ 35 $ 24 $ 18 $ 10 $ 67 $(154) $ 0
call features
Rate Sensitivity Gap Modified for Calls:
Period (33) 64 94 80 229 (233) 201
Cumulative (33) 31 125 205 434 201
---- ---- ---- ----
RSA/RSL Cumulative 0.89 1.09 1.30 1.45
==== ==== ==== ====
</TABLE>
-27-
<PAGE>
EFFECTS OF INFLATION
Financial Trust Corp's asset and liability structure is primarily monetary
in nature. Therefore, the Corporation's assets and liabilities are affected by
inflation. Changes in interest rates may have an impact on the financial
performance of the banking industry and interest rates do not necessarily move
in the same direction or in the same magnitude as prices of other goods and
services. Interest rates often reflect government policy initiatives or economic
factors not measured by a price index.
CAPITAL ADEQUACY AND REGULATORY MATTERS
The Corporation maintains a strong capital base in order to take advantage
of business opportunities while ensuring that it has adequate resources to
absorb both normal and unusual risks inherent in the banking business. Internal
capital generation, net income retained after declaration of dividends, has been
the primary method employed to increase capital accounts. Total shareholders'
equity rose $12,027,000 during 1996 an increase of 8.5% over the previous year
end. This followed growth in shareholders' equity of 12.1% and 9.7% for 1995 and
1994 respectively. The steadily increasing earnings stream during this period
has allowed the Corporation to significantly increase cash dividends paid to
shareholders. Cash dividends rose $1,355,000, or 20% over 1995 levels and
dividends declared rose 12.9% over 1995 levels. The capital position has been
consistently strong as demonstrated by the ratios that follow:
CAPITAL AND DIVIDEND RATIOS
(Dollars in thousands)
At December 31 1996 1995 1994
- -------------- ---- ---- ----
Equity/Assets 12.56% 12.39% 11.54%
For the Year
- --------------
Average Equity/Average Assets 12.14% 11.85% 11.35%
Dividends paid $8,138 $6,783 $6,197
Dividend payout 40.63% 37.40% 37.72%
The Corporation is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory -- and possibly additional
discretionary -- actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Corporation must meet specific capital guidelines that involve quantitative
measures of the Corporation's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Corporation's
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the
Corporation and each subsidiary bank meet all capital adequacy requirements to
which they are subject.
As of December 31, 1996, the most recent notification from either the
Pennsylvania Department of Banking or the Office of the Comptroller of the
Currency categorized each bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized
each bank must maintain minimum total risk-based, Tier I risk based and Tier I
leverage ratios as set forth below. There are no conditions or events since
those notifications that management believes have changed any bank's category.
The maintenance of a strong capital base at both the parent and subsidiary
levels has been an integral part of Financial Trust Corp's operating philosophy.
The risk-based capital ratios of the Corporation and each banking subsidiary (as
disclosed in Note T to the Consolidated Financial Statements) have consistently
exceeded regulatory requirements by a substantial amount. The Corporation's
risk-based capital ratios were as follows:
<TABLE>
<CAPTION>
Regulatory
At December 31 1996 1995 1994 Minimum
- -------------- ---- ---- ---- ----------
<S> <C> <C> <C> <C>
Tier I capital ratio 18.79% 18.54% 17.51% 4.00%
Total (Tier II) capital ratio 20.03% 19.78% 18.76% 8.00%
Leverage ratio 11.64% 11.42% 10.70% 4.00%
</TABLE>
Financial Trust Corp and its banking subsidiaries are subject to periodic
examinations by one or more of the various regulatory agencies. During 1996,
several examinations were conducted at the subsidiary level. The examinations
included, but were not limited to, procedures designed to review lending
practices, credit quality, liquidity, compliance, operations, and capital
adequacy of those companies. No comments were received from the various
regulatory bodies which, if implemented, would have a material effect on
Financial Trust Corp's liquidity, capital resources, or operations.
-28-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands)
- ---------------------
December 31 1996 1995
- ----------- ---------- ----------
<S> <C> <C>
Assets
Cash and due from banks $ $39,569 $ 46,864
Federal funds sold 2,700 3,075
Interest bearing bank balances 359 570
Investment securities available-for-sale 353,714 316,829
Loans 782,808 731,150
Less: Allowance for loan losses 11,240 11,038
---------- ----------
Net Loans 771,568 720,112
Premises and equipment 23,525 23,610
Accrued interest receivable 9,245 8,676
Intangible assets 7,909 8,595
Other assets 10,722 10,106
---------- ----------
TOTAL ASSETS $1,219,311 $1,138,437
========== ==========
Liabilities
Deposits:
Noninterest bearing demand deposits $ 113,605 $ 111,194
Savings and NOW deposits 421,952 416,249
Time deposits 427,053 404,277
---------- ----------
Total Deposits 962,610 931,720
Federal funds purchased and security repurchase agreements 68,991 51,951
Other short-term borrowings 2,903 1,579
---------- ----------
Total Short-term Borrowings 71,894 53,530
FHLB borrowings 18,274 256
Long-term debt 419 487
Accrued interest payable 2,286 2,187
Other liabilities 10,729 9,185
---------- ----------
TOTAL LIABILITIES 1,066,212 997,365
Shareholders' Equity
Common stock, par value $5 per share - authorized 16,000,000 shares;
8,540,595 shares issued and 8,532,131 shares outstanding 1996;
7,765,443 shares issued and outstanding 1995 42,703 38,827
Treasury Stock - 8,464 shares, at cost (226) 0
Surplus 51,493 33,509
Unrealized holding gain from securities available-for-sale, net of
taxes 5,283 4,845
Retained earnings 53,846 63,891
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 153,099 141,072
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,219,311 $1,138,437
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-29-
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
- ---------------------------------------------
Year Ended December 31 1996 1995 1994
- ---------------------- ------- -------- --------
<S> <C> <C> <C>
Interest Income
Loans, including fees $68,508 $64,903 $56,105
Investment securities:
Taxable 14,920 12,495 12,166
Tax-exempt 5,206 4,703 4,517
Other 265 754 904
--------- --------- ---------
88,899 82,855 73,692
--------- --------- ---------
Interest Expense
Deposits 33,125 31,481 25,932
Short-term borrowings 2,982 2,552 1,711
FHLB borrowings 408 128 5
Long-term debt 28 35 31
--------- --------- ---------
36,543 34,196 27,679
--------- --------- ---------
NET INTEREST INCOME 52,356 48,659 46,013
Provision for loan losses 855 709 840
--------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 51,501 47,950 45,173
--------- --------- ---------
Other Income
Fiduciary income 2,396 2,286 2,315
Service charges on deposit accounts 2,623 2,292 2,164
Fee income 1,790 1,548 1,515
Secondary market activity (133) 19 (76)
Reinsurance income 598 530 515
Other income 1,263 669 715
Net gains - equity securities 325 462 193
Net gains (losses) - debt securities (10) 10 (49)
--------- --------- ---------
8,852 7,816 7,292
--------- --------- ---------
Other Expenses
Salaries 12,624 11,737 10,951
Employee benefits 3,946 3,785 3,684
Occupancy expense, net 2,568 2,244 2,184
Furniture and equipment expense 2,093 1,889 1,611
Deposit insurance premiums 236 1,238 1,976
SAIF Recapitalization 699 0 0
Other expense 11,520 10,603 10,204
--------- --------- ---------
33,686 31,496 30,610
--------- --------- ---------
INCOME BEFORE INCOME TAXES 26,667 24,270 21,855
Applicable income taxes 6,636 6,135 5,426
--------- --------- ---------
NET INCOME $20,031 $18,135 $16,429
========= ========= =========
Per Share Data
Net Income $2.35 $2.12 $1.92
Dividends $0.96 $0.85 $0.79
Weighted average number of shares outstanding 8,529,233 8,542,257 8,542,923
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-30-
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollars in thousands)
Net
Unrealized
Gain From
Common Stock Securities Treasury Stock
------------------ Available- Retained ----------------
Shares Par Value Surplus for-Sale Earnings Shares Amount Total
--------- --------- ------- ---------- -------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 6,088,657 $ 30,444 $33,574 $ 0 $ 50,719 0 $ 0 $114,737
Net income 16,429 16,429
Cash dividends ($.79/share) (6,197) (6,197)
Employee stock purchases 6 0
Acquisition of treasury stock 9,417 (264) (264)
Issuance of treasury shares under
employee stock purchase plan (29) (9,417) 264 235
Issuance of shares in connection
with 4-for-3 stock split effected
in the form of a 33 1/3% stock
dividend and cash payment
for partial shares 1,677,092 8,385 (8,412) (27)
Unrealized holding gain from
securities available-for-sale,
net of taxes 956 956
--------- -------- ------- ------- -------- ----- ----- --------
Net increase (decrease) for the year 1,677,098 8,385 (29) 956 1,820 0 0 11,132
--------- -------- ------- ------- -------- ----- ----- --------
Balance, December 31, 1994 7,765,755 38,829 33,545 956 52,539 0 0 125,869
Net income 18,135 18,135
Cash dividends ($.85/share) (6,783) (6,783)
Acquisition of treasury stock 9,527 (286) (286)
Issuance of treasury shares under
employee stock purchase plan (29) (9,527) 286 257
Cash payment for dissenting shares
in connection with WCNB (144) (1) (3) (4)
Cash payment for partial shares
in connection with WCNB (168) (1) (4) (5)
Unrealized holding gain from
securities available-for-sale,
net of taxes 3,889 3,889
--------- -------- ------- ------- -------- ----- ----- --------
Net increase (decrease) for the year (312) (2) (36) 3,889 11,352 0 0 15,203
--------- -------- ------- ------- -------- ----- ----- --------
Balance, December 31, 1995 7,765,443 38,827 33,509 4,845 63,891 0 0 141,072
Net income 20,031 20,031
Cash dividends ($.96/share) (8,138) (8,138)
Acquisition of treasury stock 63,000 (1,729) (1,729)
Issuance of treasury shares under
dividend reinvestment plan 5 (30,204) 851 856
Issuance of treasury shares under
employee stock purchase plan (43) (24,199) 648 605
Issuance of treasury shares under
directors stock option plan (133) 4 4
Issuance of shares in connection
with a 10% stock dividend and
cash payment for partial shares 775,152 3,876 18,022 (21,938) (40)
Unrealized holding gain from
securities available-for-sale,
net of taxes 438 438
--------- -------- ------- ------- -------- ----- ----- --------
Net increase (decrease) for the year 775,152 3,876 17,984 438 (10,045) 8,464 (226) 12,027
--------- -------- ------- ------- -------- ----- ----- --------
Balance, December 31, 1996 ............... 8,540,595 $ 42,703 $51,493 $ 5,283 $ 53,846 8,464 ($226) $153,099
========= ======== ======= ======= ======== ===== ===== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-31-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in thousands)
- ----------------------
Year Ended December 31 1996 1995 1994
- ---------------------- --------- --------- ---------
<S> <C> <C> <C>
Operating Activities:
Net Income $ 20,031 $ 18,135 $ 16,429
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,912 1,670 1,539
Amortization 738 737 706
Provision for loan losses 855 709 840
Net amortization of investment security premiums 538 840 834
Deferred income tax expense 105 115 12
Increase in interest receivable (569) (561) (798)
Increase in interest payable 99 661 120
Increase (decrease) in other liabilities 1,203 (96) 559
--------- --------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES 24,912 22,210 20,241
--------- --------- ---------
Investing Activities:
Decrease (increase) in interest bearing bank balances 211 (333) 129
Available-for-sale securities:
Sales 21,899 3,563 2,363
Maturities 104,205 92,156 9,598
Purchases (162,853) (99,411) (16,382)
Held-to-maturity securities:
Maturities 0 0 86,146
Purchases 0 0 (139,269)
Net increase in loans (52,311) (24,594) (42,958)
Purchase of premises and equipment (1,827) (4,428) (3,901)
Increase in intangible assets (52) 0 (6,381)
Increase in other assets (616) (743) (990)
--------- --------- ---------
CASH USED IN INVESTING ACTIVITIES (91,344) (33,790) (111,645)
--------- --------- ---------
Financing Activities:
Net increase in noninterest bearing demand deposits 2,411 14,239 13,115
Net increase (decrease) in savings and NOW deposits 5,703 (36,967) 12,393
Net increase in time deposits 22,776 55,589 36,618
Net increase (decrease) in short-term borrowings 18,364 (2,314) 20,311
Proceeds from FHLB borrowings 18,025 0 264
Payments on FHLB borrowings (7) (6) (2)
Payments on long-term debt (68) (62) (66)
Cash dividends (8,138) (6,783) (6,197)
Acquisition of treasury stock (1,729) (286) (264)
Issuance of treasury shares under dividend reinvestment plan 856 0 0
Issuance of treasury shares under employee stock purchase plan 605 257 235
Issuance of treasury shares under directors stock option plan 4 0 0
Cash payments for dissenting and partial shares associated
with the acquisition of Washington County National Bank 0 (9) 0
Cash payments for partial shares associated with stock dividend (40) 0 (27)
--------- --------- ---------
CASH PROVIDED BY FINANCING ACTIVITIES 58,762 23,658 76,380
--------- --------- ---------
Increase (Decrease) in Cash and Cash Equivalents (7,670) 12,078 (15,024)
Cash and Cash Equivalents at Beginning of Year 49,939 37,861 52,885
--------- --------- ---------
Cash and Cash Equivalents at End of Year $ 42,269 $ 49,939 $ 37,861
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-32-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE A - SUMMARIZED ACCOUNTING POLICIES
The accounting policies discussed below are followed consistently by
Financial Trust Corp (the Corporation) and its subsidiaries. These policies are
in accordance with generally accepted accounting principles and conform to
common practices in the banking industry.
Nature of Operations: The Corporation provides a wide range of commercial and
consumer services to a diverse client base through its banking subsidiaries. The
client base includes individual, business, public and institutional customers
primarily located in Pennsylvania and Maryland. Lending services include secured
and unsecured commercial loans, residential and commercial mortgages,
installment loans and revolving consumer loans. Deposit services include a
variety of checking, savings, time, money market and individual retirement
accounts. Money management services are available, designed to improve cash flow
and return on investment. In addition, the Corporation has entered into
agreements with certain investment specialists to provide an expanding array of
specialized investment products and services to its customer base.
Financial Trust Services Company provides a full spectrum of trust
services, including administration of trusts and estates, investment management
services, and administration of retirement and employee benefit plans to
customers of all subsidiary banks.
Financial Trust Life Insurance Company provides credit life and disability
insurance to loan customers of all subsidiary banks.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Principles of Consolidation: The consolidated financial statements include the
accounts of Financial Trust Corp, the parent company; its wholly-owned
commercial banking subsidiaries consisting of Financial Trust Company,
Chambersburg Trust Company, First National Bank and Trust Co. and Washington
County National Bank; its wholly-owned trust banking subsidiary, Financial Trust
Services Company; and its wholly-owned credit life insurance company, Financial
Trust Life Insurance Company. All significant intercompany transactions and
balances have been eliminated in consolidation.
Cash Equivalents: For the purpose of presentation in the consolidated statements
of cash flows, cash equivalents include amounts due from banks and federal funds
sold.
Trading Securities: Securities held principally for resale in the near term are
classified as trading account securities and recorded at their fair values.
Unrealized gains and losses on trading account securities are included
immediately in other income. The Corporation has made limited use of trading
account securities.
Securities Held-to-Maturity: Bonds, notes, and debentures for which the
Corporation has the positive intent and ability to hold to maturity are reported
at cost, adjusted for premiums and discounts that are recognized in interest
income using the interest method over the period to maturity.
Securities Available-for-Sale: Available-for-sale securities consist of bonds,
notes, debentures, and certain equity securities not classified as trading
securities nor as held-to-maturity securities.
Unrealized holding gains and losses, net of tax, on available-for-sale
securities are reported as a net amount in a separate component of shareholders'
equity until realized.
Gains and losses on the sale of available-for-sale securities are
determined using the specific-identification method.
Declines in the fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other than temporary
have resulted in write-downs of the individual securities to their fair value.
The related write-downs have been included in earnings as realized losses.
Premiums and discounts are recognized in interest income using the
interest method over the period to maturity or call date if applicable.
-33-
<PAGE>
Loans Held for Sale: Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost or estimated market value in
the aggregate. Net unrealized losses are recognized through a valuation
allowance by charges to income.
Loans Receivable: Loans receivable that management has the intent and ability to
hold for the foreseeable future or until maturity or pay-off are reported at
their outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans.
Loan origination fees and certain direct origination costs are capitalized
and recognized as an adjustment of the yield of the related loan.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they become
due. Interest income is subsequently recognized only to the extent cash payments
are received.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic evaluation
of the adequacy of the allowance is based on the Corporation's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions.
Foreclosed Real Estate: Real estate properties acquired through, or in lieu of,
loan foreclosure are to be sold and are initially recorded at fair value at the
date of foreclosure establishing a new cost basis. After foreclosure, valuations
are periodically performed by management and the real estate is carried at the
lower of carrying amount or fair value less cost to sell. Revenue and expenses
from operations and changes in the valuation allowance are included in other
expense.
Income Taxes: Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
Premises and Equipment: Land is carried at cost. Premises, furniture and
equipment, and leasehold improvements are carried at cost, less accumulated
depreciation and amortization computed principally by the straight-line method.
Mortgage Servicing Rights: In accordance with FASB Statement No. 122, an asset
is recognized for mortgage servicing rights, regardless of whether the rights
are acquired through purchase or origination. If mortgage loans are sold or
securitized with servicing retained, the total cost of the mortgage loans is
allocated to the loans and the servicing rights based on their relative fair
values. The Corporation has had limited activity in this area.
Other Intangible Assets: Intangible assets are stated at cost less accumulated
amortization. Amortization is generally on the straight-line method over 15
years.
Financial Instruments: All derivative financial instruments held or issued by
the Corporation are held for purposes other than trading. The Corporation has
made limited use of derivative financial instruments.
Interest-rate exchange agreements: Interest-rate exchange agreements
(swaps) used in asset/liability management activities are accounted for
using the accrual method. Net interest income (expense) resulting from the
differential between exchanging floating and fixed-rate interest payments
is recorded on a current basis. Gains or losses on the sales of swaps used
in asset/liability management activities are deferred and amortized into
interest income or expense over the maturity period of the swap.
-34-
<PAGE>
Other off-balance-sheet instruments: In the ordinary course of business
the Corporation has entered into off-balance-sheet financial instruments
consisting of commitments to extend credit, commitments under credit-card
arrangements, commercial letters of credit, and standby letters of credit.
Such financial instruments are recorded in the financial statements when
they are funded or related fees are incurred or received.
Fair Values of Financial Instruments: The following methods and assumptions were
used by the Corporation in estimating fair values of financial instruments as
disclosed herein:
Cash and cash equivalents: The carrying amounts of cash and cash
equivalents approximate their fair value.
Available-for-sale and held-to-maturity securities: Fair values for
securities, excluding restricted equity securities, are based on quoted
market prices. The carrying values of restricted equity securities
approximate fair values.
Loans receivable: Fair values for loans are estimated by using discounted
cash flow analyses, using interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality. Fair values for
impaired loans are estimated using discounted cash flow analyses or
underlying collateral values, where applicable.
Deposit liabilities: The fair values disclosed for demand deposits are, by
definintion, equal to the amount payable on demand at the reporting date
(that is, their carrying amounts). The carrying amounts of variable-rate,
fixed-term money-market accounts and certificates of deposit (CDs)
approximate their fair values at the reporting date. Fair values for
fixed-rate CDs are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
Short-term borrowings: The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term borrowings
approximate their fair values.
Long-term borrowings: The fair values of the Corporation's long-term
borrowings (other than deposits) are estimated using discounted cash flow
analyses, based on the Corporation's current incremental borrowing rates
for similar types of borrowing arrangements.
Accrued interest: The carrying amounts of accrued interest approximate
their fair values.
Off-balance-sheet instruments: Fair values for the Corporation's
off-balance-sheet instruments (swaps and lending commitments) are based on
fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the counterparties'
credit standing (loan commitments); or, if there are no relevant
comparables, on pricing models or formulas using current assumptions
(interest rate swaps).
Net Income Per Share: Net income per share has been computed on the basis of the
weighted-average number of shares of common stock outstanding adjusted
retroactively for stock dividends and stock splits. The effect of common stock
equivalents is not material for any year presented.
Trust Fees: Trust fees are recorded on the cash basis which approximates results
that would be achieved on the accrual basis.
Reclassifications: The consolidated financial statements for the years ended
December 31, 1995 and 1994 have been reclassified to be consistent with the
presentation for the year ended December 31, 1996. There has been no impact on
net income or shareholders' equity as a result of these reclassifications.
-35-
<PAGE>
- --------------------------------------------------------------------------------
NOTE B - MERGERS, ACQUISITIONS, AND REORGANIZATIONS
On December 19, 1996 Keystone Financial, Inc. signed a definitive
agreement to acquire Financial Trust Corp. Under terms of the agreement, each
share of Financial Trust Corp common stock will be converted into 1.65 shares of
Keystone Financial, Inc. common stock. The transaction will be accounted for as
a pooling-of-interests and is subject to approval by the shareholders of both
companies and various regulatory authorities.
On September 30, 1995, the Corporation acquired Washington County National
Bank (WCNB) located in Williamsport, Maryland via the exchange of 2.25 shares of
Financial Trust Corp common stock for each share of WCNB common stock. The
transaction was accounted for under the pooling-of-interests method and,
accordingly, the accompanying financial statements have been restated to include
the accounts and operations of WCNB for all periods presented. At September 29,
1995, WCNB had total assets, deposits and equity of $136,181,000, $123,087,000
and $11,949,000, respectively. Separate financial data of the combined companies
for the periods preceding acquisition are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands except per share data)
- --------------------------------------------
(Unaudited)
January 1, 1995 to Year Ended
September 29, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C>
Net Interest Income
Financial Trust Corp $32,052 $40,294
Washington County National Bank 4,181 5,719
------- -------
COMBINED $36,233 $46,013
======= =======
Net Income
Financial Trust Corp $12,471 $15,548
Washington County National Bank 1,086 881
------- -------
COMBINED $13,557 $16,429
======= =======
Cash Dividends
Financial Trust Corp $4,630 $5,822
Washington County National Bank 211 375
------- -------
COMBINED $4,841 $6,197
======= =======
</TABLE>
On June 19, 1995, Farmers Trust Company's name was changed to Financial
Trust Company. In a corporate reorganization, on October 30, 1995, First Federal
Savings Bank was converted to a state chartered commercial bank named First Bank
of Hanover, Pennsylvania and subsequently merged into Financial Trust Company.
Financial Trust Services Company, a wholly-owned subsidiary was formed and
began operations on October 2, 1995. The trust operations of the commercial bank
affiliates were transferred to the newly formed company.
On April 8, 1994, the Corporation assumed the insured deposits of
Homestead Federal Savings Association of Middletown, Pennsylvania, having been
the successful bidder at an auction conducted by the Resolution Trust
Corporation. The acquisition initially increased deposits by $73,600,000. The
transaction added $6,381,000 to intangible assets.
- --------------------------------------------------------------------------------
NOTE C - RESTRICTIONS ON CASH AND DUE FROM BANK BALANCES
The banking subsidiaries are required to maintain average reserve balances
with the Federal Reserve Bank. The average amount of those balances for the year
ended December 31, 1996 approximated $9,085,000.
-36-
<PAGE>
- --------------------------------------------------------------------------------
NOTE D - DEBT AND EQUITY SECURITIES
The amortized cost, fair values and unrealized gains and losses for
investment securities at December 31 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
1996
-----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
AVAILABLE-FOR-SALE Cost Gains Losses Value
- ------------------ --------- ---------- ---------- -----
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $224,006 $1,786 $(650) $225,142
Obligations of states and political subdivisions 101,992 1,669 (141) 103,520
Corporate securities 11,149 93 (54) 11,188
-------- ------ ----- --------
Total debt securities 337,147 3,548 (845) 339,850
Equity securities 8,439 5,425 0 13,864
-------- ------ ----- --------
Total investment securities $345,586 $8,973 $(845) $353,714
======== ====== ===== ========
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands)
1995
-----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
AVAILABLE-FOR-SALE Cost Gains Losses Value
- ------------------ --------- ---------- ---------- -----
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $180,454 $1,776 $(446) $181,784
Obligations of states and political subdivisions 106,876 1,738 (190) 108,424
Corporate securities 15,634 255 (43) 15,846
-------- ------ ----- --------
Total debt securities 302,964 3,769 (679) 306,054
Equity securities 6,412 4,363 0 10,775
-------- ------ ----- --------
Total investment securities $309,376 $8,132 $(679) $316,829
======== ====== ===== ========
</TABLE>
Gross gains of $72,000 and gross losses of $82,000 were realized on 1996
sales of available-for-sale debt securities. Available-for-sale debt securities
sales resulted in gross gains of $14,000 and gross losses of $4,000 on 1995
sales, and gross gains of $2,000 and gross losses of $51,000 on 1994 sales. In
addition, net gains of $325,000, $462,000 and $193,000 were realized on the sale
of equity securities in 1996, 1995 and 1994 respectively.
Investment securities carried at approximately $146,407,000 at December
31, 1996 and $115,352,000 at December 31, 1995, were pledged to secure public
deposits and for other purposes required or permitted by law.
-37-
<PAGE>
The amortized cost, fair value and weighted average yield of debt
securities at December 31, 1996, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
(Dollars in thousands)
- ----------------------
After One After Five
One Year Year through Years through After Ten
AVAILABLE-FOR-SALE or Less Five Years Ten Years Years Total
- ------------------ -------- ------------ ------------- --------- -----
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities
Amortized cost $21,689 $ 23,729 $ 493 $ 0 $ 45,911
Fair value 21,747 23,914 505 0 46,166
Yield 5.98% 6.24% 6.67% 0.00% 6.12%
Government agency obligations
Amortized cost 6,027 58,882 95,902 17,284 178,095
Fair value 6,028 58,828 96,721 17,399 178,976
Yield 5.73% 6.18% 7.45% 7.97% 7.02%
Obligations of state and political
subdivisions (tax-exempt)
Amortized cost 6,780 29,887 37,963 25,444 100,074
Fair value 6,806 30,290 38,598 25,913 101,607
Tax-equivalent yield 7.73% 7.52% 7.64% 8.04% 7.71%
Obligations of state and political
subdivisions (taxable)
Amortized cost 1,090 530 298 0 1,918
Fair value 1,086 529 298 0 1,913
Yield 5.08% 6.29% 6.50% 0.00% 5.63%
Corporate securities
Amortized cost 1,001 9,648 0 500 11,149
Fair value 1,000 9,709 0 479 11,188
Yield 5.59% 6.69% 0.00% 7.00% 6.61%
------- -------- -------- ------- --------
Total amortized cost $36,587 $122,676 $134,656 $43,228 $337,147
======= ======== ======== ======= ========
Total fair value $36,667 $123,270 $136,122 $43,791 $339,850
======= ======== ======== ======= ========
Yield 6.22% 6.56% 7.50% 8.00% 7.08%
======= ======== ======== ======= ========
% of Portfolio 10.9% 36.4% 39.9% 12.8% 100.0%
</TABLE>
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard ("SFAS") No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No. 115 requires
management to classify investments in equity securities that have readily
determinable fair values and all investments in debt securities as either
held-to-maturity and reported at amortized cost, available-for-sale and reported
at fair value with unrealized gains and losses reported in a separate component
of shareholders' equity, or trading securities and reported at fair value with
unrealized gains and losses included in earnings. Effective January 1, 1994, the
Corporation adopted SFAS No. 115 and classified all securities as
available-for-sale. Adoption of SFAS No. 115 resulted in a $9,142,000 increase
in investment securities and a $5,942,000 increase in shareholders' equity
accounted for as the cumulative effect of a change in accounting principle. On
April 1, 1994, a significant portion of existing debt securities were classified
as held-to-maturity. At December 31, 1995, $240,490,000 of investment securities
at amortized cost, with unrealized gains of $2,686,000, were transferred from
held-to-maturity to available-for-sale pursuant to the transition provisions of
the FASB staff's Special Report on SFAS No. 115. All securities were classified
as available-for-sale at December 31, 1995 and 1996.
-38-
<PAGE>
NOTE E - LOANS RECEIVABLE
Loans consisted of the following at December 31:
(Dollars in thousands)
- ----------------------
1996 1995 1994
-------- -------- --------
Commercial, financial and agricultural $89,026 $76,795 $61,832
Real estate - construction 19,672 13,772 11,018
Real estate - commercial 164,523 152,857 152,749
Real estate - residential 431,524 414,543 410,459
Consumer 78,063 73,183 71,437
-------- -------- --------
Total $782,808 $731,150 $707,495
======== ======== ========
Changes in the allowance for loan losses were as follows:
(Dollars in thousands)
- ----------------------
1996 1995 1994
-------- -------- --------
Balance at beginning of year $11,038 $11,268 $10,903
Loans charged off (813) (1,079) (718)
Recoveries on loans previously charged off 160 140 243
-------- ------- --------
Net loans charged off (653) (939) (475)
Provision for possible loan losses 855 709 840
-------- -------- --------
Balance at end of year $11,240 $11,038 $11,268
======== ======== ========
Total nonaccrual and restructured loan balances and related annual
interest data were as follows:
(Dollars in thousands)
- ----------------------
1996 1995 1994
-------- -------- --------
Nonaccrual $437 $2,402 $2,298
Restructured 0 0 0
-------- -------- --------
Total $437 $2,402 $2,298
======== ======== ========
Interest computed at original terms $46 $251 $242
Interest recognized 18 52 38
-------- -------- --------
At December 31, 1996, there were no significant commitments to lend
additional funds on these loans.
At December 31, 1996 and 1995 the recorded investment in loans that were
considered to be impaired under FASB Statement No. 114, as amended by FASB
Statement No. 118 were $437,000 and $2,402,000, respectively, all of which were
on a nonaccrual basis. Impaired loans had related credit allowances that
aggregated $84,000 and $664,000 at December 31, 1996 and 1995, respectively.
Impaired loans were recorded at the lower of their remaining bases or the fair
value of their underlying collateral. The average recorded investment in
impaired loans was $1,153,000 during 1996 and $2,355,000 during 1995. The
Corporation recognized interest income on these impaired loans of $18,000 in
1996 and $52,000 in 1995 which included cash basis recognition of $1,000 and
$26,000, respectively.
Loans having carrying values of $2,162,000 and $191,000 were transferred
to foreclosed real estate during 1996 and 1995, respectively.
39
<PAGE>
NOTE F - PREMISES AND EQUIPMENT
Details of premises and equipment at December 31 are as follows:
(Dollars in thousands)
- ----------------------
1996 1995
------- -------
Land $3,097 $3,088
Buildings and improvements 23,502 22,841
Equipment and furniture 15,033 14,417
------- -------
41,632 40,346
Less accumulated depreciation and amortization 18,107 16,736
------- -------
Total $23,525 $23,610
======= =======
The banking subsidiaries lease certain premises, equipment and related
services under noncancelable operating leases which expire in various years
through 2010. These leases require the banking subsidiaries to pay all
maintenance costs and for one data processing lease, provides for total rental
payments based upon actual usage.
Future minimum rental payments, including estimated normal usage charges,
for all noncancelable operating leases with an initial or remaining term in
excess of one year and in the aggregate, approximates the following at December
31, 1996:
(Dollars in thousands)
- ----------------------
Due during 1997 $1,098
Due during 1998 1,022
Due during 1999 986
Due during 2000 972
Due during 2001 829
Due after 2001 1,628
------
Total minimum payments $6,535
======
Rental expense incurred for all operating leases was approximately
$1,269,000 in 1996, $1,940,000 in 1995, and $1,510,000 in 1994.
NOTE G - DEPOSITS
The Corporation paid $36,444,000 in interest on deposits and other
borrowings during 1996, $33,173,000 in 1995 and $27,560,000 in 1994.
The aggregate amount of time certificates of deposit of $100,000 or more
at December 31, 1996 and 1995 were $41,973,000 and $39,314,000, respectively.
Interest expense on these time certificates of deposit of $100,000 or more
amounted to $2,305,000 in 1996, $2,036,000 in 1995 and $1,287,000 in 1994.
Maturities of time deposits at December 31, 1996 are as follows:
(Dollars in thousands)
- ----------------------
$100,000 Less than
or More $100,000 Total
-------- --------- --------
Maturing during 1997 $27,748 $264,103 $291,851
Maturing during 1998 7,872 71,237 79,109
Maturing during 1999 2,238 18,058 20,296
Maturing during 2000 3,086 21,659 24,745
Maturing during 2001 and later 1,029 10,023 11,052
-------- --------- --------
Total $41,973 $385,080 $427,053
======== ========= ========
-40-
<PAGE>
NOTE H - SHORT-TERM BORROWINGS
Short-term borrowings consist of repurchase agreements, the Treasury tax
and loan note option program and occasional purchases of federal funds or
purchases at the discount window. Repurchase agreements are typically written
for one to thirty day periods with rates tied to 91 day Treasury bills. The
Treasury tax and loan funds carry a cost 25 basis points below the prevailing
federal funds rate and are subject to call.
Information concerning short-term borrowings is summarized as follows:
(Dollars in thousands)
- ----------------------
1996 1995
------- -------
Average balance during the year $58,411 $48,983
Rate 5.11% 5.45%
Maximum month-end balance $77,832 $61,713
Date of maximum month-end balance November 30 January 31
Investment securities underlying the short-term borrowings at year end had
a carrying and fair value of approximately $108,101,000.
NOTE I - FEDERAL HOME LOAN BANK BORROWINGS
Financial Trust Corp's subsidiary banks are members of the Federal Home
Loan Bank (FHLB) and as such can take advantage of the FHLB program of overnight
and term advances. Under terms of a blanket collateral agreement, advances from
the FHLB are collateralized by first mortgage loans and securities. Advances
available under this agreement are limited by available and qualifying
collateral and the amount of FHLB stock held by the borrower. At December 31,
1996 Financial Trust Corp's member banks could borrow an additional $316,692,000
based on qualifying collateral.
Federal Home Loan Bank borrowings at December 31 are as follows:
(Dollars in thousands)
- ----------------------
1996 1995
------- ----
Repo Plus Advance Program, interest 7.00%, due 1997 $7,325 $0
Fixed Rate Advance Program, interest 5.30%, due 1999 3,000 0
Fixed Rate Advance Program, interest 5.72%, due 1999 1,700 0
Three month Putable Advance, interest 4.97%, due 2001 5,000 0
Fixed Rate Advance Program, interest 6.29%, due 2003 1,000 0
Affordable Housing Program, interest 4.75%, due 2014 249 256
------- ----
Total Federal Home Loan Bank borrowings $18,274 $256
======= ====
NOTE J - LONG-TERM DEBT
Details of long-term debt at December 31 are as follows:
(Dollars in thousands)
- ----------------------
1996 1995
---- ----
Cumberland County Industrial Development
Authority Agreement (Parent Company) $419 $487
---- ----
Total $419 $487
==== ====
The Corporation financed the construction of an operations center through
an industrial development obligation with Cumberland County. Under the terms of
this agreement, annual payments of approximately $97,000 (including interest at
75% of prime) are due until maturity in November 2000. The agreement is
collateralized by a mortgage and the assignment of the lease between the
Corporation and the Cumberland County Industrial Development Authority.
-41-
<PAGE>
NOTE K - COMMON STOCK
Earnings per share and weighted average shares outstanding references have
been restated to reflect the effects of a 10% stock dividend that was paid June
17, 1996 to shareholders of record June 3, 1996, a 33 1/3% stock dividend that
was paid August 29, 1994 to shareholders of record August 15, 1994 and the
exchange of 2.25 shares of Financial Trust Corp common stock for each share of
Washington County National Bank common stock on September 30, 1995 in an
acquisition accounted for as a pooling-of-interests. Accordingly, 468,839 shares
of Washington County National Bank stock were exchanged for 1,054,576 shares of
Financial Trust Corp common stock, plus $9,000 in lieu of fractional and
dissenting shares. The effect of common stock equivalents is not significant for
any period presented.
NOTE L - STOCK OPTION PLANS
The Corporation provides eligible employees and directors with stock option
plans that are more fully described below. Effective January 1, 1996 the
Corporation adopted the disclosure provisions of FASB Statement No. 123,
"Accounting for Stock-Based Compensation". As permitted under this new standard,
the Corporation continues to account for its plans in accordance with APB
Opinion No. 25 and related interpretations. As such, no compensation costs have
been recognized for the stock option plans.
The following pro forma amounts indicate the net income and earnings per
share that would have resulted if compensation costs for these plans were
determined under the recognition provisions of FASB Statement No. 123 using the
fair value of the awards at the grant date.
(Dollars in thousands)
- ----------------------
1996 1995
------- -------
Net Income
As reported $20,031 $18,135
Pro Forma $19,900 $18,038
Earnings Per Share
As reported $2.35 $2.12
Pro Forma $2.33 $2.11
Because FASB Statement No. 123 is applicable only to options granted
subsequent to December 31, 1994, its pro forma effect will not be fully
reflected until 1997. The Corporation has an "Employee Stock Option Plan" and a
Non-Employee Director Stock Option Plan". Under the terms of these plans, the
Corporation has reserved for issuance a total of 267,666 shares of common stock
of which 172,906 are available for future grants at December 31, 1996. Options
on 19,501 shares were granted on January 22, 1997 under the employee plan but no
additional grants will be awarded under the terms of the agreement with Keystone
Financial, Inc. The plans provide for the issuance of nonqualified stock options
and, under the employee plan, incentive stock options. Options are granted at an
exercise price not less than the fair market value of the Corporation's common
stock on the date of grant. Grants under the employee plan are immediately
exercisable and have a life of ten years from the date of grant. Grants under
the director plan are exercisable 20% per year and have a life of five years
from the date of grant.
The following tables provide roll forwards of options outstanding under
each plan:
Employee Stock Option Plan: Under the Employee Stock Option Plan of 1992,
121,000 shares of common stock have been reserved for grant of options over a
seven year period. The number of options which may be granted is determined
annually by a committee of outside directors. The purchase price of shares
acquired pursuant to an option is based upon the fair market value as of the
date of the grant of the option.
-42-
<PAGE>
A summary of the Corporation's Employee stock option activity, and related
information for the years ended December 31 follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- --------------------- ----------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year 43,253 $25.95 26,754 $25.69 12,092 $20.77
Granted 20,351 $27.16 16,499 $26.36 14,662 $29.75
Exercised - -
Forfeited 1,829 27.64 - -
------- --------- ------- --------- ------- ---------
Outstanding-end of year 61,775 $26.30 43,253 $25.95 26,754 $25.69
======= ========= ======= ========= ======= =========
Exercisable at end of year 61,775 $26.30 43,253 $25.95 26,754 $25.69
Weighted-average fair value of options
granted during the year $6.00 $5.77
</TABLE>
Exercise prices for options outstanding as of December 31, 1996 ranged
from $20.77 to $29.75. The weighted-average remaining contractual life of those
options is 7.75 years. Options on 19,501 shares, at $41.25 per share were
granted on January 22, 1997.
Non-Employee Director Stock Option Plan: Under the Non-Employee Director Stock
Option Plan of 1994, 146,666 shares of common stock have been reserved for grant
of options over a ten year period. The plan provides for the automatic grant on
an annual basis of the option to purchase 733 shares of the Corporation's common
stock as of the date of the Corporation's annual meeting. The purchase price of
shares acquired pursuant to an option is based upon the fair market value as of
the date of the annual meeting.
A summary of the Corporation's Non-Employee Director stock option
activity, and related information for the years ended December 31 follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- --------------------- ----------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year 22,723 $27.65 12,461 $29.84
Granted 10,262 $27.62 10,262 $25.00 12,461 $29.84
Exercised 146 $25.00 - -
Forfeited - - -
------- --------- ------- --------- ------- ---------
Outstanding-end of year 32,839 $27.65 22,723 $27.65 12,461 $29.84
======= ========= ======= ========= ======= =========
Exercisable at end of year 13,432 $28.08 7,006 $28.43 2,482 $29.84
Weighted-average fair value of options
granted during the year $5.36 $3.96
</TABLE>
Exercise prices for options outstanding as of December 31, 1996 ranged
from $25.00 to $29.84. The weighted-average remaining contractual life of those
options is 3.25 years.
-43-
<PAGE>
- --------------------------------------------------------------------------------
NOTE M - EMPLOYEE BENEFIT PLANS
Pension Plans: The Corporation and its subsidiaries have noncontributory defined
benefit pension plans covering substantially all employees. The benefits are
based on years of service and the employee's compensation during the last five
years of employment. The Corporation's funding policy is to contribute annually
the amount that would be necessary to amortize the unfunded accrued liability
over 20 years. A subsidiary bank's plan is funded annually at levels required to
amortize its unfunded accrued liability over 15 years. Contributions are
intended to provide not only for benefits attributed to service to date, but
also for those expected to be earned in the future.
Net periodic pension cost includes the following components:
<TABLE>
<CAPTION>
(Dollars in thousands)
- ----------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 579 $ 435 $ 548
Interest cost on projected benefit obligation 832 752 748
Actual return on plan assets (1,449) (2,193) 129
Net amortization and deferral 269 1,179 (1,126)
------- ------- -------
Net periodic pension cost $ 231 $ 173 $ 299
======= ======= =======
</TABLE>
The following table sets forth the plans' funded status and amounts
recognized in the Corporation's consolidated balance sheet at December 31:
<TABLE>
<CAPTION>
(Dollars in thousands)
- ----------------------
1996 1995
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $9,403 in 1996 and $8,942 in 1995 $ 9,543 $ 9,098
======= =======
Projected benefit obligation for service rendered to date $12,712 $12,023
Plan assets at fair value, primarily listed stocks and bonds 13,855 12,631
------- -------
Plan assets in excess of projected benefit obligation 1,143 608
Unrecognized net loss from past experience different from that
assumed and effects of changes in assumptions 667 958
Unrecognized prior service cost (245) (262)
Unrecognized net asset at January 1, 1988 (476) (521)
------- -------
Prepaid pension cost included in other assets $ 1,089 $ 783
======= =======
</TABLE>
Rate assumptions used in actuarial calculations were as follows:
<TABLE>
<CAPTION>
In determining the actuarial present
value of the projected benefit obligation
-----------------------------------------
Increase in future Long-term rate of return
Discount Rate compensation levels on plan assets
------------- ------------------- ------------------------
<C> <C> <C> <C>
1996 7.0 - 7.5% 4.5 - 5.0% 7.5 - 9.0%
1995 7.0 - 7.5% 4.5 - 5.0% 7.5 - 9.0%
1994 7.5 - 8.0% 5.0% 7.5 - 9.0%
</TABLE>
Profit Sharing Plan: The Corporation has a noncontributory profit sharing plan
covering eligible employees. Costs of the profit sharing plan are funded as
accrued. Profit sharing expense amounted to $1,337,000 in 1996, $1,254,000 in
1995 and $1,106,000 in 1994. Contributions to the plan are discretionary and are
determined annually by the Corporation's Board of Directors.
-44-
<PAGE>
- --------------------------------------------------------------------------------
Supplemental Employee Retirement Plans: The Corporation sponsors an unfunded
supplemental employee retirement plan, which is a nonqualified plan that
provides certain officers defined pension benefits and noncontributory profit
sharing benefits in excess of limits imposed by federal law. Net periodic
pension cost amounted to $109,000 in 1996, $75,000 in 1995 and $55,000 in 1994.
Expense under the plan amounted to $135,000 in 1996, $90,000 in 1995 and $67,000
in 1994. At December 31, 1996, the projected benefit obligation for this plan
totaled $745,000, of which $505,000 (comprised of unrecognized net loss of
$287,000 and unrecognized prior service cost of $218,000) is subject to later
amortization. The remaining $240,000 is included in other liabilities in the
accompanying consolidated balance sheet. A subsidiary bank has a supplemental
retirement plan that covers certain management personnel. The plan is funded
with life insurance. Premiums paid on the underlying life insurance policies and
charged to operations were $17,000 in 1996 and 1995 and $18,000 in 1994.
Stock Purchase Plan: Under the Employee Stock Purchase Plan of 1992, 121,000
shares of common stock were reserved for issuance to employees over a five year
period. The number of shares which could be issued to each participant was
determined annually, based on individual earnings, and their cost was equal to
85% of the fair market value as established by the most recent public sale of
shares. The plan terminated at December 31, 1996. Employees purchased 24,199
shares at $25.00 per share in 1996, 10,480 shares at $24.55 per share in 1995
and 10,365 shares at $22.73 per share in 1994.
- --------------------------------------------------------------------------------
NOTE N - INCOME TAXES
The provisions for income taxes in the consolidated statements of income
consist of the following components:
(Dollars in thousands)
- ----------------------
Years Ended December 31 1996 1995 1994
- ----------------------- ------ ------ ------
Current provision:
Federal $6,348 $5,934 $5,305
State 183 86 109
Deferred provision 105 115 12
------ ------ ------
Applicable income tax expense $6,636 $6,135 $5,426
====== ====== ======
Following is a reconciliation of the actual income tax provisions with
taxes computed at the Federal statutory rate of 35% for all years presented:
<TABLE>
<CAPTION>
(Dollars in thousands)
- ----------------------
Year Ended December 31 1996 1995 1994
- ---------------------- ------------------- ------------------- ------------------
Amount Rate Amount Rate Amount Rate
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate $ 9,333 35.0% $ 8,495 35.0% $ 7,649 35.0%
Effect of tax-exempt income (2,690) (10.1) (2,590) (10.7) (2,260) (10.3)
Effect of nondeductible expenses 492 1.8 426 1.8 338 1.5
Low income housing and
rehabilitation tax credits (120) (0.4) (120) (0.5) (110) (0.5)
Other (379) (1.4) (76) (0.3) (191) (0.9)
------- ---- ------- ---- ------- ----
Applicable income tax
expense/rate $ 6,636 24.9% $ 6,135 25.3% $ 5,426 24.8%
======= ==== ======= ==== ======= ====
</TABLE>
-45-
<PAGE>
- --------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities at December 31, 1996, 1995 and 1994 are
presented below:
<TABLE>
<CAPTION>
(Dollars in thousands)
- ----------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses $1,986 $1,830 $1,504
Deferred loan fees 332 412 456
Deferred compensation and directors fees 372 311 310
Nonaccrual Interest 16 31 102
Capital loss carryforward 0 9 162
Supplemental employee retirement plan 112 55 29
Other real estated owned 47 46 0
Other 26 20 0
------ ------ ------
Gross deferred tax assets $2,891 $2,714 $2,563
------ ------ ------
Deferred tax liabilities:
Premises and equipment $1,605 $1,490 $1,365
Pension plan 402 133 301
Investment securities 3,050 2,802 641
Unearned premiums/deferred costs
life insurance company 115 193 150
Other 162 198 122
------ ------ ------
Gross deferred tax liabilities 5,334 4,816 2,579
------ ------ ------
Net deferred tax liabilities $2,443 $2,102 $ 16
====== ====== ======
</TABLE>
The Corporation has determined that it is not required to establish a
valuation reserve for deferred tax assets since it is more likely than not that
deferred tax assets will be principally realized through carry back to taxable
income in prior years. The conclusion that it is "more likely than not" that the
deferred tax assets will be realized is based on a history of growth in earnings
and the prospects for continued growth including an analysis of potential
uncertainties that may affect future operating results. The Corporation will
continue to review the criteria related to the recognition of deferred tax
assets on a quarterly basis.
The Corporation made income tax payments of $6,748,000 during 1996,
$5,933,000 during 1995 and $5,875,000 during 1994. Income taxes attributable to
investment security gains were $110,000 in 1996, $165,000 in 1995 and $50,000
during 1994.
- --------------------------------------------------------------------------------
NOTE O - FINANCIAL INSTRUMENTS
The Corporation is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of the
Corporation's customers. Financial instruments include commitments to extend
credit, and standby letters of credit. Standby letters of credit commit the
Corporation to make payments on behalf of customers when certain specified
future events occur.
The Corporation's exposure to credit loss is essentially the same for
these items as that involved in extended loans to customers. The Corporation
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance sheet instruments. Collateral is obtained based on
management's credit assessment of the particular customer.
-46-
<PAGE>
- --------------------------------------------------------------------------------
The Corporation's maximum exposure to credit loss for loan commitments
(unfunded loans and unused lines of credit) and standby letters of credit
outstanding at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
- ----------------------
Contract or
Notional Amount
---------------
<S> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit
Consumer credit card lines $ 17,733
Consumer home equity lines 20,483
Commercial real estate, construction and land development 29,775
Other unused commitments 71,937
--------
$139,928
Standby letters of credit $ 9,840
</TABLE>
The commitments shown for both standby letters of credit and unused lines
of credit generally expire in one year or less. The commitments also carry a
variable rate of interest as opposed to a fixed rate.
Commitments to extend credit are agreements to lend to the customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
The estimated fair values of the Corporation's financial instruments at
December 31 were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 1995
---------------------------- --------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------------------------- --------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 42,628 $ 42,628 $ 50,509 $ 50,509
Investment securities 353,714 353,714 316,829 316,829
Loans 782,808 731,150
Reserve for loan losses (11,240) (11,038)
---------- ----------
Net loans 771,568 785,347 720,112 737,237
---------- ---------- ---------- ----------
Total financial assets $1,167,910 $1,181,689 $1,087,450 $1,104,575
========== ========== ========== ==========
Financial liabilities:
Deposits $ 962,610 $ 961,048 $ 931,720 $ 931,315
Short-term borrowings 55,844 55,844 49,380 49,380
Securities sold not owned 28,375 28,375 4,150 4,150
Long-term debt 6,368 7,001 743 728
---------- ---------- ---------- ----------
Total financial liabilities $1,053,197 $1,052,268 $ 985,993 $ 985,573
========== ========== ========== ==========
Off-balance sheet instruments $ 0 $ 0 $ 0 $ 0
</TABLE>
- --------------------------------------------------------------------------------
NOTE P - CONCENTRATIONS OF CREDIT RISK
Most of the Corporation's business activity, including loans and loan
commitments, is with customers located within Cumberland, Franklin, York, Perry,
Dauphin, Adams and Lancaster counties of Pennsylvania and Washington County,
Maryland. The portfolio is well diversified with no industry comprising greater
than 10% of the total loan outstandings.
-47-
<PAGE>
- --------------------------------------------------------------------------------
NOTE Q - RELATED PARTIES
In the ordinary course of business, the banking subsidiaries have loan,
deposit and other transactions with directors, executive officers and their
business interests. Such transactions are on substantially the same terms,
including interest rates and loan collateral, as those prevailing at the time
for comparable transactions with others. Activity for these related party loans
for the year ended December 31, 1996 was as follows:
(Dollars in thousands)
- ----------------------
Balance at beginning of year $11,661
New loans 12,864
Payments 10,306
-------
Balance at end of year $14,219
=======
- --------------------------------------------------------------------------------
NOTE R - COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Corporation has various
outstanding commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Corporation is
a defendant in certain claims and legal actions arising in the ordinary course
of business. In the opinion of management, after consultation with legal
counsel, the ultimate disposition of these matters is not expected to have a
material adverse effect on the consolidated financial condition of the
Corporation.
- --------------------------------------------------------------------------------
NOTE S - RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES
Certain restrictions exist regarding the ability of the banking
subsidiaries to transfer funds to the Corporation in the form of cash dividends,
loans or advances. At December 31, 1996, approximately $76,725,000 of
undistributed earnings of the banking subsidiaries was available for
distribution to the Corporation as dividends without prior approval of
regulatory authorities. Additionally, under Federal Reserve regulation, the
banking subsidiaries are limited as to the amount they may loan or advance to
the Corporation unless such loans or advances are collateralized by specific
obligations. At December 31, 1996, the maximum amount available for transfer
from subsidiaries to the Corporation in the form of unsecured loans or advances
approximated $14,463,000.
- --------------------------------------------------------------------------------
NOTE T - REGULATORY MATTERS
The Corporation is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory -- and possibly additional
discretionary -- actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Corporation must meet specific capital guidelines that involve quantitative
measures of the Corporation's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Corporation's
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the
Corporation and each subsidiary bank meet all capital adequacy requirements to
which they are subject.
As of December 31, 1996, the most recent notification from either the
Pennsylvania Department of Banking or the Office of the Comptroller of the
Currency categorized each bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized
each bank must maintain minimum total risk-based, Tier I risk based and Tier I
leverage ratios as set forth below. There are no conditions or events since
those notifications that management believes have changed any bank's category.
-48-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
- ----------------------
As of December 31, 1996
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets)
Consolidated $149,095 20.03% >$59,544 >8.00% $ N/A N/A
Financial Trust Company 69,867 17.17% > 32,554 >8.00% >40,692 >10.00%
Chambersburg Trust Company 24,136 18.69% > 10,328 >8.00% >12,911 >10.00%
First National Bank and Trust Co. 29,295 24.84% > 9,433 >8.00% >11,791 >10.00%
Washington County National Bank 13,820 17.04% > 6,487 >8.00% > 8,109 >10.00%
Tier I Capital (to Risk Weighted Assets)
Consolidated 139,907 18.79% > 29,777 >4.00% N/A N/A
Financial Trust Company 64,781 15.92% > 16,277 >4.00% >24,415 > 6.00%
Chambersburg Trust Company 22,522 17.44% > 5,164 >4.00% > 7,746 > 6.00%
First National Bank and Trust Co. 27,821 23.59% > 4,717 >4.00% > 7,705 > 6.00%
Washington County National Bank 12,806 15.79% > 3,244 >4.00% > 4,865 > 6.00%
Tier I Capital (to Average Assets)
Consolidated 139,907 11.64% > 48,081 >4.00% N/A N/A
Financial Trust Company 64,781 10.21% > 25,376 >4.00% >31,721 > 5.00%
Chambersburg Trust Company 22,522 11.23% > 8,025 >4.00% >10,031 > 5.00%
First National Bank and Trust Co. 27,821 13.01% > 8,557 >4.00% >10,696 > 5.00%
Washington County National Bank 12,806 8.73% > 5,866 >4.00% > 7,332 > 5.00%
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
- ----------------------
As of December 31, 1995
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets)
Consolidated $136,193 19.78% >$55,076 >8.00% $ N/A N/A
Financial Trust Company 62,537 16.76% > 29,843 >8.00% >37,303 >10.00%
Chambersburg Trust Company 22,148 18.13% > 9,776 >8.00% >12,220 >10.00%
First National Bank and Trust Co. 27,329 23.98% > 9,116 >8.00% >11,394 >10.00%
Washington County National Bank 12,623 16.68% > 6,056 >8.00% > 7,569 >10.00%
Tier I Capital (to Risk Weighted Assets)
Consolidated 127,632 18.54% > 27,538 >4.00% N/A N/A
Financial Trust Company 57,874 15.51% > 14,921 >4.00% >22,382 > 6.00%
Chambersburg Trust Company 20,621 16.88% > 4,888 >4.00% > 7,332 > 6.00%
First National Bank and Trust Co. 25,905 22.73% > 4,558 >4.00% > 6,837 > 6.00%
Washington County National Bank 11,677 15.43% > 3,028 >4.00% > 4,542 > 6.00%
Tier I Capital (to Risk Weighted Assets)
Consolidated 127,632 11.42% > 44,718 >4.00% N/A N/A
Financial Trust Company 57,874 9.66% > 23,968 >4.00% >29,960 > 5.00%
Chambersburg Trust Company 20,621 10.80% > 7,637 >4.00% > 9,546 > 5.00%
First National Bank and Trust Co. 25,905 13.97% > 7,417 >4.00% > 9,271 > 5.00%
Washington County National Bank 11,677 8.56% > 5,459 >4.00% > 6,824 > 5.00%
</TABLE>
-49-
<PAGE>
NOTE U - PARENT COMPANY ONLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
BALANCE SHEETS
(Dollars in thousands)
December 31 1996 1995
-------- --------
<S> <C> <C>
Assets
Cash $ 604 $ 258
Investment securities 307 70
Securities purchased under agreement to resell 1,400 1,650
Premises and equipment 5,219 5,437
Investment in subsidiaries 144,786 132,909
Other assets 3,173 2,792
-------- --------
TOTAL ASSETS $155,489 $143,116
======== ========
Liabilities
Long-term debt $ 419 $ 487
Purchased funds 569 435
Other liabilities 1,402 1,122
-------- --------
TOTAL LIABILITIES 2,390 2,044
-------- --------
Shareholders' Equity
Common stock 42,703 38,827
Treasury stock (226) 0
Surplus 51,493 33,509
Unrealized holding gain from securities available-for-sale 5,283 4,845
Retained earnings 53,846 63,891
-------- --------
TOTAL SHAREHOLDERS' EQUITY 153,099 141,072
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $155,489 $143,116
======== ========
STATEMENTS OF INCOME
(Dollars in thousands)
Year Ended December 31 1996 1995 1994
------- ------- -------
Income
Dividends from bank subsidiaries $ 8,660 $ 9,483 $ 6,691
Investment securities 4 1 25
Securities purchased under agreement to resell 53 51 50
Other, primarily management and service fees
from bank subsidiaries 3,388 2,812 2,145
------- ------- -------
12,105 12,347 8,911
Expenses
Building occupancy and depreciation 359 307 215
Other, primarily operating expenses 3,689 2,609 1,823
------- ------- -------
4,048 2,916 2,038
------- ------- -------
Income before income taxes and equity in undistributed
net income of subsidiaries 8,057 9,431 6,873
Applicable income taxes (466) (91) (66)
------- ------- -------
8,523 9,522 6,939
Net income of subsidiaries less dividends 11,508 8,613 9,490
------- ------- -------
NET INCOME $20,031 $18,135 $16,429
======= ======= =======
</TABLE>
-50-
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31 1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Operating Activities:
Net Income $20,031 $18,135 $16,429
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 576 473 417
Deferred income taxes 122 (196) 1
Decrease (increase) in other assets (277) 0 13
Increase (decrease) in other liabilities 17 836 (78)
Equity in undistributed net income of subsidiaries (11,508) (8,613) (9,490)
------- ------- ------
CASH PROVIDED BY OPERATING ACTIVITIES 8,961 10,635 7,292
------- ------- ------
Investing Activities:
Proceeds from maturities of investment securities 0 0 1,000
Purchases of investment securities (130) (13) (53)
Purchases of premises and equipment (358) (1,270) (1,383)
Increase in other assets 250 (171) (839)
Investment in subsidiary 0 (2,200) 0
------- ------- ------
CASH USED IN INVESTING ACTIVITIES (238) (3,654) (1,275)
------- ------- ------
Financing Activities:
Payments on long-term debt (68) (62) (66)
Cash dividends (8,138) (6,783) (6,197)
Net increase (decrease) in short-term borrowings 133 82 82
Issuance of treasury shares under:
directors stock option plan 4 0 0
employee stock purchase plan 605 257 235
dividend reinvestment plan 856 0 0
Acquisition of treasury stock (1,729) (286) (264)
Cash payments for dissenting and partial shares associated
with the acquisition of Washington County National Bank 0 (9) 0
Cash payment for partial shares associated with stock dividend (40) 0 (27)
------- ------- -------
CASH USED IN FINANCING ACTIVITIES (8,377) (6,801) (6,237)
------- ------- -------
Increase (decrease) in cash and cash equivalents 346 180 (220)
Cash and cash equivalents at beginning of year 258 78 298
------- ------- -------
Cash and cash equivalents at end of year $ 604 $ 258 $ 78
======= ======= =======
</TABLE>
-51-
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
Three Months Ended March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1996
Interest income $21,437 $22,038 $22,471 $22,953
Interest expense 8,913 8,978 9,255 9,397
Net interest income 12,524 13,060 13,216 13,556
Provision for loan losses 146 271 182 256
Securities gains (losses) 78 213 29 (5)
Other income 1,826 2,032 2,488 2,191
Other expenses 7,907 8,131 8,935 8,713
Income before income taxes 6,375 6,903 6,616 6,773
Applicable income taxes 1,571 1,867 1,354 1,844
Net income 4,804 5,036 5,262 4,929
Net income per share 0.56 0.59 0.62 0.58
Cash dividends declared per share 0.23 0.23 0.25 0.25
Return on average assets 1.68% 1.72% 1.77% 1.63%
Return on average equity 13.63% 14.20% 14.77% 13.45%
(Dollars in thousands, except per share data)
Three Months Ended March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
1995
Interest income $19,707 $20,569 $21,111 $21,468
Interest expense 7,853 8,465 8,836 9,042
Net interest income 11,854 12,104 12,275 12,426
Provision for loan losses 76 121 126 386
Securities gains (losses) 19 125 74 254
Other income 1,780 1,833 1,910 1,821
Other expenses 7,924 7,888 7,693 7,991
Income before income taxes 5,653 6,053 6,440 6,124
Applicable income taxes 1,325 1,558 1,706 1,546
Net income 4,328 4,495 4,734 4,578
Net income per share 0.51 0.53 0.55 0.53
Cash dividends declared per share 0.21 0.21 0.21 0.22
Return on average assets 1.60% 1.64% 1.69% 1.63%
Return on average equity 13.68% 13.86% 14.25% 13.49%
</TABLE>
The acquisition of Washington County National Bank (WCNB) on September 30, 1995
was accounted for as a pooling-of-interests and, accordingly, the consolidated
financial statements have been restated to include the accounts of WCNB for all
periods presented. All per share amounts have also been restated to reflect the
10% stock dividend paid June 17, 1996.
-52-
<PAGE>
Independent Auditor's Report
Board of Directors and Shareholders
Financial Trust Corp
We have audited the accompanying consolidated balance sheet of Financial Trust
Corp and subsidiaries as of December 31, 1996, and the related consolidated
statements of income, shareholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of Financial Trust Corp
for the two years ended December 31, 1995 were audited by other auditors whose
report, dated March 1, 1996, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1996 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Financial
Trust Corp and subsidiaries as of December 31, 1996, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Beard & Company, Inc.
Reading, Pennsylvania
February 28, 1997
-53-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There was a Form 8-K filed on April 30, 1996 reporting a change of accountants.
On April 24, 1996 Financial Trust Corp's Board of Directors hired Beard &
Company, Inc. with its principal office at One Park Plaza, P.O. Box 311,
Reading, Pennsylvania, 19603, to replace Ernst & Young LLP as the Corporation's
independent accountants for 1996.
In connection with the audits conducted by Ernst & Young LLP of the Corporation
for each of the two fiscal years ended December 31, 1994 and 1995 and in the
subsequent interim period, there were no disagreements with Ernst & Young LLP on
any matters of accounting principles or practices, financial statement
disclosure, or auditing scope and procedures which, if not resolved to the
satisfaction of Ernst & Young LLP, would have caused Ernst & Young LLP to make
reference to the matter in their report.
Ernst & Young LLP's report on the Corporation's consolidated financial
statements for fiscal years 1994 and 1995 did not contain an adverse opinion or
a disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles. Ernst & Young LLP had been requested to
furnish a letter addressed to the Securities and Exchange Commission stating
that they agreed with the statements made by the registrant in response to this
item. Upon receipt, this letter was filed as an amendment to this Form 8-K.
The decision to change accountants was recommended by the Audit Committee of the
Board of Directors of Financial Trust Corp and unanimously approved by the
Corporation's Board of Directors.
-54-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION
The following table sets forth information regarding each of the eighteen
directors and two executive officers who are not directors.
<TABLE>
<CAPTION>
Business Experience Including
Principal Occupation for the
Past 5 Years and Certain Other Director
Name and Age Directorships (1) Since
- ------------ ----------------- -----
<S> <C> <C>
DIRECTORS WHOSE TERMS EXPIRE IN 1997
Thomas E. Beck (45) Vice President/Finance, Bitrek 1987
Corp. (Pipe Fittings Manufacturer)
James E. Byron (69) International Trade Specialist 1995
U.S. Department of Commerce
Webb S. Hersperger, M.D. (66) Physician 1982
Allan W. Holman, Jr., Esq. (67) Senior Partner, Holman and Holman 1993
Thomas H. Shank (67) Chairman, G.A. Miller Lumber 1995
Company Inc., Real Estate
Developer; Chairman,
Washington County National Bank
Peter C. Zimmerman (50) President and COO of the 1991
Corporation; President and CEO,
Chambersburg Trust Company
DIRECTORS WHOSE TERMS EXPIRE IN 1998
Robert W. Brown (68) President, Wacco Properties (Real 1987
Estate Development and Rentals)
Thomas G. Burkey (61) Owner, Horst Electric Co. 1984
(Electrical Contracting)
William H. Kiick (61) Senior Vice President of the 1991
Corporation; President and CEO,
Financial Trust Company
M.L. Patterson, Jr. (66) Senior Vice President of the Corporation; 1995
President, CEO and Vice Chairman
Washington County National Bank
Jack K. Sunday (69) Dairy Farmer 1982
Ray L. Wolfe (58) Chairman and CEO of the 1982
Corporation; Chairman, Financial
Trust Company
DIRECTORS WHOSE TERMS EXPIRE IN 1999
Lynn S. Baker (46) Senior Vice President of the 1990
Corporation; Executive Vice
President, Financial Trust Company
Harold L. Brake (60) President, Charles E. Brake Co., 1984
Inc. (Excavating Contractors);
Chairman, Chambersburg Trust
Company
Richard G. King (52) President, Utz Quality Foods, Inc. 1990
(Snack Food Manufacturer and
Wholesaler)
William F. Shull (63) Retired Executive Director, Greater 1987
Waynesboro Chamber of Commerce
Paul L. Strickler (67) Retired Executive Vice President, 1982
United Telephone System -
Eastern Group
Mary Ann Warrell (67) Director, Pennsylvania Dutch Co., 1982
Inc. (Candy Manufacturer and
Distributor)
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Executive
Officer
Since
-----
Bradley S. Everly (45) Senior Vice President and CFO of 1989
the Corporation (2)
Robert E. Rahal (35) Senior Vice President of the 1996
Corporation; President, CEO and
Chairman, First National Bank and Trust
Company (3)
</TABLE>
-55-
<PAGE>
- -----------------
(1) Each director has held, or prior to his or her retirement held, the
positions indicated or other comparable policy-making positions for the
entities named for at least the last five years with the exceptions of
Messrs. Kiick, Zimmerman, Patterson and Wolfe. Mr. Kiick was elected
President and CEO of Financial Trust Company in 1995. He was formerly
President of First Federal Savings Bank (1991-1995). Mr. Zimmerman was
elected President and COO of the Corporation in 1995. He was formerly
Senior Vice President of the Corporation (1991-1995). He is also President
and CEO of Chambersburg Trust Company. Mr. Patterson was elected Senior
Vice President of the Corporation in 1995, upon the Corporation's
acquisition of Washington County National Bank and has been President and
CEO (since 1979) and Vice Chairman of the Board (since 1991) of Washington
County National Bank. Mr. Wolfe, formerly President and CEO of the
Corporation (1982-1995) and of Financial Trust Company (1975-1995), was
elected Chairman and CEO of the Corporation and Chairman of Financial Trust
Company in 1995.
(2) Mr. Everly has been Chief Financial Officer of the Corporation since 1989,
and Senior Vice President since 1995. He served as Secretary in 1994-1995
and as Treasurer from 1989 to 1995.
(3) Mr. Rahal has been President (since 1995) and Executive Vice President
(1994-1995) of First National Bank and Trust Co.; and Senior Vice President
& Chief Lending Officer (1991-1994) of Financial Trust Company.
No person named above as a director or executive officer has any family
relationship with any other person so named, and there are no arrangements or
understandings between any director or executive officer and any other person
pursuant to which any person was or is to be selected to be a director or
executive officer.
A majority of the Board of Directors may increase the number of directors
between meetings of the shareholders. Any vacancy occurring in the Board of
Directors, whether due to an increase in the number of directors, resignation,
retirement, death or any other reason, may be filled by an appointment made by
the remaining directors.
To the Corporation's knowledge, all filing requirements arising under Section
16(a) of the Securities Exchange Act of 1934 applicable to directors and
officers were complied with except that director Harold L. Brake filed one late
Form 4 report for one transaction and director James E. Byron failed to file two
Form 4 reports for a total of two transactions.
-56-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding the components of
compensation for the years ended December 31, 1994, 1995 and 1996 for the five
most highly compensated executive officers whose compensation exceeded $100,000.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------- ------------
Other Annual All Other
Name and Principal Position Year Salary (1) Bonus (1) Compensation (2) Options (3) Compensation (4) (5)
--------------------------- ---- ---------- --------- ---------------- ----------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Ray L. Wolfe 1996 300,000 65,610 22,500 3,682 25,650
Chairman & CEO of the Corporation; 1995 250,000 41,695 22,500 3,793 18,150
Chairman of Financial Trust Company 1994 230,000 36,441 22,500 3,361 15,150
Peter C. Zimmerman 1996 175,000 36,339 22,500 2,285 5,490
President & COO of the Corporation; 1995 135,000 23,474 20,250 2,105 773
President & CEO of Chambersburg 1994 121,500 20,049 18,225 1,852 675
Trust Company
William H. Kiick 1996 145,000 25,483 21,750 2,026 3,398
Senior Vice President of the 1995 122,692 17,462 18,404 1,884 3,117
Corporation; President & CEO of 1994 110,000 16,504 16,500 1,828 1,548
Financial Trust Company
Dennis C. Caverly 1996 140,000 21,673 21,000 2,094 3,257
Senior Vice President of the 1995 126,500 18,373 18,975 2,046 2,864
Corporation; Chairman & CEO of 1994 120,500 16,698 18,075 1,815 1,728
First National Bank and Trust Co.;
President of Financial Trust
Services Company
M. L. Patterson, Jr. (6) 1996 110,000 27,500 5,900 0 2,766
Senior Vice President of the 1995 100,000 12,000 5,625 0 580
Corporation; President, CEO and Vice 1994 ----- ----- ----- ----- -----
Chairman of Washington County
National Bank
</TABLE>
- ------------------
(1) Salary and Bonus are discussed in the Human Resources Committee's report
which appears hereinafter.
(2) The Corporation has a Profit Sharing Plan which is described along with
other employee benefit plans in the report of the Human Resources
Committee. Amounts in this column represent the amounts accrued for each of
the named officers under the Profit Sharing Plan in the years 1994, 1995
and 1996, except for Mr. Patterson's amounts which represent directors fees
paid to him for attendance at Washington County National Bank Board of
Directors meetings.
(3) For 1996 stock option grant information, please see the following table.
(4) Amounts appearing in this column represent payment by the Corporation for
term life insurance coverage, available under a group plan offered on the
same terms to all employees of the Corporation. See (5) for additional
amounts attributable to Mr. Wolfe and to Mr. Zimmerman.
(5) Effective January 1, 1994, Mr. Wolfe was a participant in the Supplemental
Employee Retirement Plan, which is a non-qualified plan that provides
certain officers defined pension benefits and non-contributory profit
sharing benefits in excess of limits imposed by federal law. Mr. Wolfe's
non-contributory profit sharing benefit for 1996 was $22,500, for 1995 was
$15,000 and for 1994 was $12,000. Effective January 1, 1996, Mr. Zimmerman
was a participant in the same Plan, and his non-contributory profit sharing
benefit for 1996 was $3,750.
(6) Mr. Patterson was not employed by Financial Trust Corp in 1994; therefore,
there are no amounts listed for that year. Mr. Patterson has an Employment
Agreement with Financial Trust Corp guaranteeing him an annual base salary
of $100,000 and the use of a vehicle through September 30, 1998. Amounts
disclosed for 1995 represent total annual compensation, although Mr.
Patterson became employed by the Corporation on September 30, 1995 upon the
Corporation's acquisition of Washington County National Bank.
-57-
<PAGE>
Stock Option Grants in 1996
The following table sets forth information concerning individual grants of
options to purchase the Corporation's Common Stock made to the named officers
during 1996.
<TABLE>
<CAPTION>
Individual Grants
- -------------------------------------------------------------------------------------------- Potential Realizable
Percent of Value At Assumed
Total Annual Rates Of Stock
Number of Options Price Appreciation For
Shares Granted to Option Term (1)
Underlying All Exercise Market ------------------------
Options Employees Price Price Expiration
Name Granted (#) in 1996 ($/Sh) ($/Sh) Date 5% 10%
---- ----------- ------- ------ ------ ---- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Ray L. Wolfe 3,682 18% 27.16 27.16 01/17/06 62,891 159,379
Peter C. Zimmerman 2,285 11% 27.16 27.16 01/17/06 39,030 98,909
William H. Kiick 2,026 10% 27.16 27.16 01/17/06 34,606 87,698
Dennis C. Caverly 2,094 10% 27.16 27.16 01/17/06 35,767 90,641
M.L. Patterson, Jr. 0 0% N/A N/A N/A N/A N/A
All Others 10,264 51% 27.16 27.16 01/17/06 175,317 444,288
Total Options Granted 20,351 100% 27.16 27.16 01/17/06 347,611 880,915
To Employees in 1996
</TABLE>
(1) The dollar amounts under these columns are the result of calculations at
the 5% and 10% assumed rates of stock price appreciation required by the
Securities and Exchange Commission and therefore are not intended to
forecast possible future appreciation, if any, of the Corporation's stock
price. The actual value of the stock options will depend upon the future
price of the stock. The appreciation shown is for the ten year option term.
Aggregated Option Exercises In 1996 And Option Values As Of December 31, 1996
The following table sets forth information concerning the value of the stock
options of the named officers as of December 31, 1996. No options were exercised
in 1996 by the named officers.
<TABLE>
<CAPTION>
Shares Number of Shares
Acquired on Value Underlying Unexercised Value of Unexercised in-the
Name Exercise (#) Realized ($) Options at 12/31/96 (#) Money Options at 12/31/96 ($) (1)
- ---- ------------ ------------ ----------------------- ---------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ray L. Wolfe 0 0 13,966 0 191,908 0
Peter C. Zimmerman 0 0 7,866 0 107,281 0
William H. Kiick 0 0 7,232 0 98,274 0
Dennis C. Caverly 0 0 7,559 0 103,298 0
M.L. Patterson, Jr. 0 0 0 0 0 0
</TABLE>
(1) Represents the difference between the aggregate market value at December
31, 1996 of the shares subject to the options and the aggregate option
price of those shares.
-58-
<PAGE>
HUMAN RESOURCES COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
General. The Corporation does not have a Compensation Committee; rather, the
Human Resources Committee is charged with making decisions and recommendations
to the Board of Directors with regard to compensation of all employees of the
Corporation, and executive officers in particular.
Actions of the Human Resources Committee with regard to executive
compensation are designed to provide competitive levels of base salary,
incentive bonus opportunity and equity ownership to the chief executive officer
(CEO) and the other four most highly compensated senior officers of the
Corporation (the Senior Executives). They are also designed to relate the forms
of compensation to the performance of the Corporation on the basis of earnings
and growth; there is no relationship at present of executive compensation to the
performance of the Corporation's common stock on the NASDAQ over the counter
market, where its shares are traded. If the Corporation's price performance had
been included in the compensation formula, the CEO and the Senior Executives
would have received higher compensation during four of the last five years. A
graph comparing the Corporation's stock performance to the domestic NASDAQ
market and a peer group of Middle Atlantic banking companies appears following
this report.
Other executive officers and key employees are eligible to participate in
the Executive Incentive Plan and the Stock Option Plan of 1992. Determination of
awards under the programs differ between participants depending on the relevant
level of responsibility exercised by the participant, but all formulae used are
similar to that of the chief executive officer.
Compensation paid to the Corporation's executive officers in 1996, as
reflected in the foregoing table as to the Senior Executives, consisted of base
salary, incentive bonus, profit sharing, Supplemental Employee Retirement Plan
benefits, the value of payments for term life insurance coverage and directors
fees paid to Mr. Patterson for attendance at Washington County National Bank
Board of Directors meetings.
Executive officers and other key employees may participate in the Deferred
Compensation Plan of Financial Trust Corp which allows participants to defer a
portion of their compensation. Interest is paid on the deferrals at a rate tied
to the six month United States Treasury Bill.
Mr. Patterson, a Senior Executive, is an employee of Washington County
National Bank and therefore was eligible to participate only in the Executive
Incentive Plan in 1996.
Compensation of the Chief Executive Officer. Regulations of the Securities and
Exchange Commission require disclosure of the bases for compensation reported
for the CEO, Ray L. Wolfe, and the relationship between the Corporation's
performance during fiscal year 1996 and Mr. Wolfe's compensation.
Mr. Wolfe's base salary during 1996 was set in 1995, and was considered to
reward him for his and the Corporation's performance during 1995 and to be
competitive with base salaries paid CEO's of other banking companies of similar
size and scope of operations. In late 1996, the Human Resources Committee
approved an 8.33% increase in Mr. Wolfe's base salary, effective January 1,
1997, an action which was ratified by the Board of Directors.
Mr. Wolfe is eligible to participate in the same incentive compensation
plans available to the other Senior Executives. The Human Resources Committee
relies on both performance related criteria and subjective factors in arriving
at awards under both the Executive Incentive Plan and the Stock Option Plan of
1992. This provides the CEO with incentive to be goal-directed, while providing
stability regarding the relative level of his compensation through the use of
non-performance factors.
-59-
<PAGE>
Mr. Wolfe's 1996 award under the Executive Incentive Plan ("Bonus" in the
table) was based 59% on objective performance criteria and 41% on subjective
criteria. Objective performance criteria included earnings and funds growth for
the Corporation. As indicated in the Table, Mr. Wolfe is Chairman of the Board
of Financial Trust Company and Chairman and CEO of the Corporation. Funds growth
is defined as the percentage of growth of average deposits and repurchase
agreements.
The other Senior Executives' awards under the Executive Incentive Plan were
determined using similar formulae, although the weighting of the objective
performance portion for these individuals was 75% based upon earnings and funds
growth for the banking subsidiary where each performed his principal duties, and
25% upon the earnings and funds growth of the Corporation, except for Mr.
Patterson, whose award was 100% based upon subjective criteria, and for Mr.
Zimmerman, whose objective portion was 65% based upon earnings and funds growth
for Chambersburg Trust Company and 35% upon the earnings and funds growth of the
Corporation.
The Employee Retirement Plan. The Employee Retirement Plan is a defined
benefit plan under the Employee Retirement Income Security Act of 1974. Each
full-time employee of the Corporation or its subsidiaries becomes an eligible
participant after completing one year of service and attaining the age of 21.
The Plan generally provides for a prospective pension benefit at age 65
calculated as follows: 1.15% of average monthly compensation multiplied by the
number of years of service, plus 0.65% of average monthly compensation which is
in excess of the Social Security Integration Level multiplied by the number of
years of service to a maximum of 35 years. The average monthly compensation is
based on the highest five consecutive years out of the final ten years prior to
the earlier of the date of termination or normal retirement.
Amounts are set aside each year in trust on the basis of actuarial
calculations. Such amounts cannot be readily determined with respect to any
specified person. The normal cost to the Plan in 1995 and 1996 was equal to 4.7%
and 3.4% respectively of the total salaries of Plan participants at the
beginning of the year. Remuneration covered by the Plan is equal to total W-2
pay excluding bonuses and commissions. Retirement benefits are not subject to
any deduction for Social Security benefits or other offset amounts.
-60-
<PAGE>
The following is a table which shows the estimated annual benefits payable
upon retirement to persons in the identified years of service and salary
categories, assuming retirement at age 65 and retirement during 1996. The Social
Security Integration Level in effect during 1996 was $27,576.
Final Average Annual Retirement Benefits for Years of
Compensation Service Indicated
10 Years 20 Years 30 Years 40 Years
---------------------------------------------------------------------
$25,000 $2,875 $5,750 $8,625 $11,500
$50,000 7,208 14,415 21,623 28,101
$75,000 11,708 23,415 35,123 45,289
$100,000 16,208 32,415 48,623 62,476
$125,000 20,708 41,415 62,123 79,664
$150,000 25,208 50,415 75,623 96,851
$200,000 25,208 50,415 75,623 96,851
Mr. Wolfe has 41 years of credited service under the Plan and $150,000 of
the amount reported for him in the compensation table would be included in the
calculation of final average compensation. Similarly, Mr. Caverly has 34 years,
Mr. Zimmerman 22 years, Mr. Kiick 5 years and Mr. Patterson no years of credited
service under the Plan; $140,000, $150,000, $145,000, and $0 of the amounts
reported for them respectively in the compensation table would be included in
the calculation of final average compensation. Under the Supplemental Employee
Retirement Plan, the Corporation incurred a defined benefit pension expense for
Mr. Wolfe in 1996 of $101,214 and in 1995 of $75,257 and for Mr. Zimmerman in
1996 of $7,798.
The Profit Sharing Plan. The Corporation has a Profit Sharing Plan under which
all persons who have been full-time employees of the Corporation or its
subsidiaries for at least one year become members of the Plan. Under the Plan,
the banking subsidiaries contribute from net earnings or accumulated surplus an
amount recommended by the Human Resources Committee and approved by the Board of
Directors. The contributions are limited by the maximum income tax deduction
allowed. Effective for plan years beginning on or after January 1, 1996, the
Plan is amended to permit the plan administrator and trustee to operate the Plan
in compliance with the requirements for transaction-based fiduciary relief
available under ERISA section 404(c) and the regulations thereunder.
The allocation of the contributions under the Profit Sharing Plan is
determined as that portion which the compensation of each member bears to the
aggregate compensation of all members. A member, on or before November 15 of
each year, may elect in writing to receive none, 25% or 50% of his amount in
cash, and the balance is deferred.
Members' requisitely deferred shares vest at the rate of 10% the first full
year in the Plan, 20% the second, 40% the third, 60% the fourth, 80% the fifth
and 100% the sixth. Members' voluntarily deferred shares vest at the rate of
100% the first full year in the Plan. A member who separates from service for
any reason other than death, disability or retirement at age 65 is entitled to
receive his or her vested interest. A member who retires at age 65 or becomes
disabled is entitled to all amounts credited to him or her. The beneficiary of a
member or former member who dies is entitled to all amounts credited to that
member.
From January 1, 1994 to December 31, 1996, the amounts accrued pursuant to
the Profit Sharing Plan for the accounts of Messrs. Wolfe, Zimmerman, Kiick,
Caverly and Patterson are disclosed in the Executive Compensation Table under
"Other Annual Compensation." The amount accrued for all employees as a group was
$3,698,470.24.
-61-
<PAGE>
The Supplemental Employee Retirement Plan. The Corporation sponsors an
unfunded supplemental employee retirement plan, which is a nonqualified plan
that provides certain officers defined pension benefits and non-contributory
profit sharing benefits in excess of limits imposed by federal law. At December
31, 1996, the projected benefit obligation for the plan totaled $745,000, of
which $505,000 (comprised of unrecognized net loss of $287,000 and unrecognized
prior service cost of $218,000) is subject to later amortization. The remaining
$240,000 is included in other liabilities in Financial Trust Corp's consolidated
balance sheet.
The Employee Stock Purchase Plan. The five year Employee Stock Purchase
Plan of 1992 was approved by the shareholders at the 1992 Annual Meeting. This
Plan was the successor of several similar employee stock purchase plans which
were in effect successively from 1966 through 1991.
A total of 121,000 shares of the Corporation's common stock was authorized
for use in the Plan. Of the total number of shares available under the Plan,
24,200 shares were available for purchase in each calendar year 1992 through and
including 1996; provided that in the event options were granted for less than
24,200 shares in a particular year or that any options granted were not
exercised, the unused share balances were carried over and available for use
under the Plan in any subsequent year or years.
Each person who was a full-time employee of the Corporation or its
subsidiaries for at least one year was entitled to participate. Each December 31
an eligible employee could have purchased shares in an amount equivalent to 10%
of his or her annual compensation, subject to certain limitations defined in the
Plan, at a purchase price equal to 85% of market value on December 1.
On December 31, 1996, Messrs. Wolfe, Zimmerman, Kiick, Caverly and
Patterson purchased 1,200, 700, 580, 560 and 0 shares respectively. Of a total
of 376 employees eligible to participate in 1996, 319 purchased 24,199 shares on
December 31, all at an exercise price of $25.00 per share.
The Stock Option Plan. The Stock Option Plan of 1992 was approved by the
shareholders at the 1992 Annual Meeting. A total of 121,000 shares of the
Corporation's Common Stock have been authorized for use in the Plan over a seven
year period. Shares subject to options which are unexercised upon termination of
such options are available for future options granted under the Plan.
All officers and key employees of the Corporation and of any present or
future subsidiary of the Corporation who are employed on a full time basis are
eligible to receive an option or options under the Plan. Recommendations for the
grant of options are to be made by the members of the Human Resources Committee
to the disinterested members of the Board of Directors, sitting as a Stock
Option Committee, who must approve such grants.
The purchase price of shares acquired pursuant to an option is 100% of the
fair market value of the shares as of the date of the grant of the option,
defined as the mean of the highest and lowest quoted selling prices published in
the Wall Street Journal NASDAQ listings for the date of the grant, if shares are
traded on that date, or for the first date prior to the date of the grant on
which shares are traded.
The Non-Employee Director Stock Option Plan. Under the Non-Employee Director
Stock Option Plan of 1994, 146,666 shares of Common Stock have been reserved for
the granting of options to all non-employee directors of the Corporation over a
ten year period. The Plan provides for the automatic grant as of the date of the
Corporation's annual meeting to each director of an option to purchase 733
shares of the Corporation's Common Stock. The purchase price of shares acquired
pursuant to an option is based upon the fair market value as of the date of the
annual meeting. Options on 10,262 shares at $27.62 per share were granted on
April 24, 1996.
Washington County National Bank. Washington County National Bank was
acquired through merger by Financial Trust Corp on September 30, 1995.
Washington County National Bank employees were not eligible to participate in
the aforementioned Plans in 1996. They became participants in the aforementioned
Plans on January 1, 1997.
Insider Compensation Committee Membership. Only disinterested directors are
members of the Human Resources Committee. Compensation recommendations for
subsidiary bank employees were presented to the Committee by Messrs. Caverly,
Zimmerman, Kiick, Patterson and Baker, and compensation recommendations for
these five executives were made by Mr. Wolfe to this committee. Mr. Wolfe's
compensation was determined by the members of the Committee.
HUMAN RESOURCES
COMMITTEE
Richard G. King, Chairman
Thomas E. Beck, Harold L. Brake,
Thomas G. Burkey, Thomas H. Shank,
Jack K. Sunday and Mary Ann Warrell,
Members
-62-
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The following line graph presentation compares Financial Trust Corp's five year
cumulative shareholder return with the NASDAQ Market Index (U.S. Companies) and
a Peer Group Index comprised of 141 Middle Atlantic banking companies.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN AMONG
FINANCIAL TRUST CORP, NASDAQ MARKET INDEX AND MG GROUP INDEX
(MIDDLE ATLANTIC BANKS)
Graph Plot Points
COMPANY 1991 1992 1993 1994 1995 1996
- ------- ---- ---- ---- ---- ---- ----
Financial Trust Corp 100 150.89 217.54 198.22 215.44 323.52
Industry Index
(Middle Atlantic Bank 100 125.23 155.57 147.70 224.28 317.65
Index)
Broad Market
(Nasdaq Market Index) 100 100.98 121.13 127.17 164.96 204.98
Assumes $100 invested on Jan. 1, 1992
Assumes Dividend Reinvested
Fiscal Year Ending December 31, 1996
-Source
Media General Financial Services
Richmond, VA
-63-
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During 1996, four special and four regular meetings of the Board of
Directors were held. All incumbent directors attended at least 75% of the total
meetings of the Board and the committees on which they served, excepting Mrs.
Warrell, who attended 60% of Human Resources Committee meetings and 63% of Board
meetings.
Directors of the Corporation who are not officers are paid $450 for
attendance at each meeting of the Board, $100 for attendance at each committee
meeting which is preceding, following or coincident with a full Board meeting,
and $200 for attendance at each committee meeting which is not preceding,
following or coincident with a full Board meeting. Directors who are not
employees may elect to defer these fees for periods of not less than three years
and no longer than a period ending with the year in which the director attains
age 70. Interest is paid on the deferrals at a rate tied to the six month United
States Treasury Bill.
Non-employee directors are also eligible to receive stock options at the
time of each annual meeting. The Non-Employee Director Stock Option Plan is
described in the Human Resources Committee Report on Executive Compensation.
Members of the directors' Audit Committee are Paul L. Strickler, Chairman,
Robert W. Brown, Thomas G. Burkey, James E. Byron, Webb S. Hersperger, M.D.,
Wayne D. Hill, Allan W. Holman, Jr., Esq., Warren A. Resley and Charles E. West.
The Committee, which met five times during 1996, reviews the reports of the
Audit Department and relates significant findings and recommendations to the
Board of Directors. The Committee meets annually with representatives of the
Corporation's independent auditors to review their audit reports and management
letter, which details any observed internal control weaknesses and
recommendations for improvement.
Members of the directors' Executive Committee are Paul L. Strickler,
Chairman, Harold L. Brake, Robert W. Brown, William H. Kiick, Richard G. King,
M.L. Patterson, Jr., Thomas H. Shank, Ray L. Wolfe and Peter C. Zimmerman.
Dennis C. Caverly served on the Committee during 1996 until his retirement on
December 31, 1996. The Committee, which met twice during 1996, exercises the
powers of the Board of Directors between Board meetings, and makes
recommendations to the Board on various matters.
Members of the directors' Human Resources Committee are Richard G. King,
Chairman, Thomas E. Beck, Harold L. Brake, Thomas G. Burkey , Thomas H. Shank,
Jack K. Sunday and Mary Ann Warrell. George P. Buckey served on the Committee
during 1996 and until his retirement on January 31, 1997. The Committee, which
met five times during 1996, reviews the Corporation's compensation
administration and employee benefit programs and makes recommendations to the
Board of Directors concerning these matters (see the Committee's Report
following the table on Executive Compensation).
Members of the directors' Planning Committee are Paul L. Strickler,
Chairman, Harold L. Brake, Robert W. Brown, Richard G. King, Thomas H. Shank and
Ray L. Wolfe. The Committee, which met four times during 1996, evaluates
earnings, dividend policy and possible stock repurchase plans. The Committee
also explores acquisitions and mergers, and makes recommendations to the Board
of Directors concerning these matters.
The Board of Directors does not have a standing Nominating Committee.
-64-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As of February 21, 1997, Financial Trust Corp (the "Corporation") had
outstanding 8,532,131 shares of common stock. As of February 21, 1997, Financial
Trust Services Company ("FTSC"), which is a trust subsidiary of the Corporation
organized in 1995, the total outstanding shares of which are beneficially owned
by the Corporation, held either directly or by way of its nominees, an aggregate
of 667,832 shares, or approximately 7.83% of the outstanding Common Stock of the
Corporation as fiduciary for certain trusts, estates and agency accounts which
beneficially own such shares. Of these shares, FTSC had sole voting power with
respect to 526,988 shares and shared voting power with respect to 121,747
shares. FTSC, as fiduciary, has the right and power, exercisable either alone or
in conjunction with a co-fiduciary, to vote such shares in the best interest of
any such trust, estate or agency account and the beneficiaries or principals
thereof.
To the best of the Corporation's information and belief, no other person or
group holds beneficially or of record, directly or indirectly, 5% or more of the
outstanding shares of the Corporation's Common Stock.
On December 19, 1996, the Board of Directors of the Corporation approved an
Agreement and Plan of Reorganization between this Corporation and Keystone
Financial, Inc. which, assuming the necessary shareholder and regulatory
approvals are obtained, would result in the merger of this Corporation into
Keystone Financial, Inc. and issuance of shares of Keystone Common Stock in
exchange for all outstanding shares of Financial Trust Corp Common Stock.
-65-
<PAGE>
<TABLE>
<CAPTION>
Shares of Common Stock
Beneficially Owned, Directly or Percent of
Name Address Indirectly, as of February 21, 1997 (1) (2) Class (3)
---- ------- ------------------------------------------- ---------
<S> <C> <C> <C>
DIRECTORS WHOSE TERMS EXPIRE IN 1997
Thomas E. Beck 1001 East Main Street 12,116 - - -
Waynesboro, PA 17268
James E. Byron P.O. Box 1626 25,240 - - -
Shepardstown, WV 25443
Webb S. Hersperger, MD 1012 Drayer Court 17,148 - - -
Carlisle, PA 17013
Allan W. Holman,Jr., Esq. 14 East Main Street 4,940 - - -
New Bloomfield, Pa 17068
Thomas H. Shank 1909 Applewood Drive 78,787 - - -
Hagerstown, MD 21740
Peter C. Zimmerman 3256 Muirfield Road 8,840 - - -
Chambersburg, PA 17201
DIRECTORS WHOSE TERMS EXPIRE IN 1998
Robert W. Brown 77 Wynnecrest Drive 18,654 - - -
Waynesboro, PA 17268
Thomas G. Burkey 12 Kenwood Drive 58,378 - - -
Chambersburg, PA 17201
William H. Kiick 77 Oak Hills Drive 3,417 - - -
Hanover, PA 17331
<PAGE>
M. L. Patterson, Jr. 10627 Applewood Drive 3,642 - - -
Williamsport, MD 21795
Jack K. Sunday 40 S. Middlesex Road 32,999 - - -
Carlisle, PA 17013
Ray L. Wolfe 41 Ladnor Lane 33,063 - - -
Carlisle, PA 17013
DIRECTORS WHOSE TERMS EXPIRE IN 1999
Lynn S. Baker 627 Belvedere Street 3,869 - - -
Carlisle, PA 17013
Harold L. Brake 224 Rhondel Drive 110,094 1.29%
St. Thomas, PA 17252
Richard G. King 2596 Hanover Pike 4,394 - - -
Hanover, PA 17331
William F. Shull 11465 Pine Hill Drive 11,188 - - -
Waynesboro, PA 17268
Paul L. Strickler 127 Strayer Drive 17,307 - - -
Carlisle, PA 17013
Mary Ann Warrell 789 West South Street 5,373 - - -
Carlisle, PA 17013
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Bradley S. Everly 1277 Fourth Avenue 2,935 - - -
Chambersburg, PA 17201
Robert E. Rahal 11153 Weatherstone Drive 7,053 - - -
Waynesboro, PA 17268
All directors and 459,437 5.38%
executive officers as a group (20)
</TABLE>
(1) Each nominee or his or her family members have sole voting and/or
investment power with respect to the shares included in the table, except
that a) the following included shares are held in trustee, custodian or
similar fiduciary capacities: Mr. Beck, 3,083; Mr. Brake, 7,046; Mr. Brown,
13,000; Mr. Strickler, 15,542; Mr. Kiick, 460, b) Mr. Burkey's reported
shares include 10,119 shares owned by the Cedar Grove Cemetery Association,
of which Mr. Burkey is an officer and part owner, c) Mr. Shank's reported
shares include 12,008 shares owned by a partnership in which Mr. Shank is a
one-third partner.
(2) The shares in this column do not include shares that could be acquired
pursuant to options exercisable within 60 days, which would be 17,453
shares for Mr. Wolfe, 10,151 shares for Mr Zimmerman, 9,258 shares for Mr.
Kiick, 7,966 shares for Mr. Baker, 7,084 shares for Mr. Everly and 2,498
shares for Mr. Rahal; and which would be 876 shares for all non-employee
directors except for Mrs. Warrell, 730 shares; Mr. Shank, 146 shares; and
Mr. Byron, 146 shares
(3) Less than 1% unless otherwise indicated.
-66-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Chambersburg Trust Company, Financial Trust Company, First National Bank
and Trust Co., Washington County National Bank and Financial Trust Services
Company have had in the past, and expect to have in the future, transactions in
the ordinary course of their business with directors and officers of the Banks
and the Corporation and their associates, on substantially the same terms,
including interest rates and collateral on loans, as those prevailing at the
same time for comparable transactions with other persons, which do not involve
more than the normal risk of collectability or present other unfavorable
features.
-67-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)Documents filed as part of this report:
1 Financial Statements
None - The audited consolidated financial statements for the
years ended December 31, 1996, 1995 and 1994, together with
independent auditors reports thereon are included as Part
II, Item 8 of this report. Selected financial data is
included as Part II, Item 6 of this report.
2 Financial Statement Schedules
None - All schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable or pertain to items as to
which the required disclosures have been made elsewhere in
the financial statements and notes thereto and therefore
have been omitted.
3 Exhibits:
1-2 None
3(a). Articles of Incorporation -- Incorporated by
reference are the Corporation's Articles of
Incorporation filed as Exhibit 3(a) to Annual
Report Form 10-K for the fiscal year ended
December 31, 1987.
3(b). Bylaws -- Incorporated by reference are the
Corporation's bylaws filed as Exhibit 3(b) to
Annual Report Form 10-K for the fiscal year ended
December 31, 1987.
4-21 None
-68-
<PAGE>
22 Subsidiaries of the registrant:
State of Percent
Name Incorporation Owned
---- ------------- -----
Chambersburg Trust Pennsylvania 100%
Company
Financial Trust Pennsylvania 100%
Company
First National Bank Pennsylvania 100%
and Trust Co.
Washington County Maryland 100%
National Bank
Financial Trust Life Arizona 100%
Insurance Company
Financial Trust Pennsylvania 100%
Services Company
23 None
24a. Consent of Independent Auditors, Beard & Company, Inc. --
Attached
24b. Consent of Independent Auditors, Ernst & Young LLP --
Attached
24c. Consent of Independent Auditors, Smith Elliott Kearns & Co.
-- Attached
25-27 None
28a. Additional exhibits -- Auditors' Report, Ernst & Young LLP
-- Attached
28b. Additional exhibit -- Auditors' Report, Smith Elliott
Kearns & Co. -- Attached.
(d) Reports on Form 8-K:
On January 25, 1996 a Report was filed on Form 8-K disclosing
Financial Trust Corp's 1995 earnings and the fact that financial
results were pooled and restated to include the acquisition of
Washington County National Bank which was completed on September 30,
1995. This was previously reported as part of a Form 10-Q Quarterly
Report filing.
On April 30, 1996 a Report was Filed on Form 8-K disclosing a change
in independent accountants for 1996 as more fully disclosed in Part
II, Item 9. This was previously reported as part of a Form 10-Q
Quarterly Report filing.
On August 28, 1996 a Report was filed on Form 8-K announcing plans to
repurchase up to 250,000 shares of the 8.54 million shares of
outstanding common stock. This was previously reported as part of a
Form 10-Q Quarterly Report filing.
On December 30, 1996 a Report was filed on Form 8-K announcing that
Keystone Financial, Inc. had signed a definitive agreement to acquire
Financial Trust Corp. Under the terms of the agreement, each share of
Financial Trust Corp will be converted into 1.65 shares of Keystone,
pursuant to a fixed exchange ratio.
All Forms 8-K filed during 1996 are incorporated herein by reference.
-69-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FINANCIAL TRUST CORP
By /s/ Bradley S. Everly
--------------------------------
Bradley S. Everly
Senior Vice President and Chief
Financial Officer
March 4, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
NAME TITLE DATE
---- ----- ----
/s/ Ray L. Wolfe Chairman, Chief Executive
-------------------- Officer and Director (Principal
Ray L. Wolfe Executive Officer) March 5, 1997
/s/ Lynn S. Baker Director March 4, 1997
- --------------------
Lynn S. Baker
/s/ Thomas E. Beck Director March 6, 1997
- --------------------
Thomas E. Beck
Director
- -------------------- --------------
Harold L. Brake
Director
- -------------------- --------------
Robert W. Brown
/s/ Thomas G. Burkey Director March 5, 1997
- --------------------
Thomas G. Burkey
/s/ James E. Byron Director March 4, 1997
- --------------------
James E. Byron
/s/ Webb S. Hersperger, M.D. Director March 4, 1997
- -------------------- --------------
Webb S. Hersperger, M.D.
-70-
<PAGE>
NAME TITLE DATE
---- ----- ----
/s/ Allan W. Holman, Jr., Esq. Director March 4, 1997
- --------------------
Allan W. Holman, Jr., Esq.
/s/ William H. Kiick Director March 4, 1997
- --------------------
William H. Kiick
Director
- -------------------- -------------
Richard G. King
/s/ M.L. Patterson, Jr. Director March 5, 1997
- --------------------
M.L. Patterson, Jr.
Director
- -------------------- --------------
Thomas H. Shank
Director
- -------------------- --------------
William F. Shull
Director
- -------------------- --------------
Paul L. Strickler
/s/ Jack K. Sunday Director March 4, 1997
- --------------------
Jack K. Sunday
Director
- -------------------- --------------
Mary Ann Warrell
/s/ Peter C. Zimmerman President, Chief Operations March 4, 1997
- -------------------- Officer and Director
Peter C. Zimmerman
/s/ Bradley S. Everly Senior Vice President and Chief March 4, 1997
- -------------------- Financial Officer (Principal
Bradley S. Everly Financial and Accounting
Officer
-71-
Exhibit 24 a
Consent of Independent Auditors
We hereby consent to the inclusion in this Annual Report on Form 10-K and
the further incorporation by reference in the Registration Statements on Form
S-3 (Registration No. 33-28249), Form S-8 (Registration No. 33-54852), Form S-8
(Registration No. 33-57494), and Form S-8 (Registration No. 33-01989) of our
report dated February 28, 1997 with respect to the consolidated financial
statements of Financial Trust Corp for the year ended December 31, 1996.
Beard & Company, Inc.
Reading, Pennsylvania
March 4, 1997
Exhibit 24 b
Consent of Independent Auditors
We consent to the inclusion in this Annual Report on Form 10-K and the
further incorporation by reference into the Registration Statements on Form S-3
(Registration No. 33-28249), Form S-8 (Registration No. 33-54852), Form S-8
(Registation No. 33-57494), and Form S-8 (Registration No. 33-01989) of
Financial Trust Corp of our report dated March 1, 1996 with respect to the
consolidated financial statements of Financial Trust Corp for the years ended
December 31, 1995 and December 31, 1994.
Ernst & Young LLP
Harrisburg, Pennsylvania
March 4, 1997
Exhibit 24 c
Consent of Independent Auditors
We hereby consent to the inclusion in this Annual Report on Form 10-K and
the further incorporation by reference in the Registration Statements on Form
S-3 (Registration No. 33-28249), Form S-8 (Registration No. 33-54852), Form S-8
(Registration No. 33-57494), and Form S-8 (Registration No. 33-01989) of our
report dated January 13, 1995 with respect to the financial statements of
Washington County National Bank for the year ended December 31, 1994 (not
presented separately herein).
SMITH ELLIOTT KEARNS & COMPANY, LLC
Hagerstown, Maryland
March 4, 1997
Exhibit 28a
Report of Independent Auditors
Board of Directors and Shareholders
Financial Trust Corp
We have audited the consolidated balance sheet of Financial Trust Corp and
subsidiaries as of December 31, 1995, and the related statements of income,
shareholders' equity, and cash flows for each of the two years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits. We did not audit the 1994
financial statements of Washington County National Bank, a consolidated
subsidiary acquired on September 30, 1995, as more fully described in Note B,
which statements reflect net income constituting 5% of consolidated net income
for the year ended December 31, 1994. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to data included for Washington County National Bank, is based solely on
the report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and, for 1994, the report of other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Financial Trust Corp
and subsidiaries at December 31, 1995, and the consolidated results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note D to the consolidated financial statements, in 1994 the
Corporation changed its method of accounting for investments.
Ernst & Young LLP
Harrisburg, Pennsylvania
March 1, 1996
Exhibit 28 b
Independent Auditor's Report
To the Board of Directors and Shareholders
Washington County National Bank
Williamsport, Maryland
We have audited the balance sheet of Washington County National Bank as of
December 31, 1994, and the related statements of income, changes in
shareholders' equity, and cash flows for the year then ended (not presented
separately herein). These financial statements are the responsiblity of the
Bank's management. Our responsiblity is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Washington County National Bank
as of December 31, 1994, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, the Bank changed its method
of accounting for investments in the year ended December 31, 1994.
SMITH ELLIOTT KEARNS & COMPANY, LLC
Hagerstown, Maryland
January 13, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Dec-31-1996
<CASH> 39,569
<INT-BEARING-DEPOSITS> 359
<FED-FUNDS-SOLD> 2,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 353,714
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 782,808
<ALLOWANCE> 11,240
<TOTAL-ASSETS> 1,219,311
<DEPOSITS> 962,610
<SHORT-TERM> 79,219
<LIABILITIES-OTHER> 13,015
<LONG-TERM> 11,368
0
0
<COMMON> 42,703
<OTHER-SE> 110,396
<TOTAL-LIABILITIES-AND-EQUITY> 1,219,311
<INTEREST-LOAN> 68,508
<INTEREST-INVEST> 20,126
<INTEREST-OTHER> 265
<INTEREST-TOTAL> 88,899
<INTEREST-DEPOSIT> 33,125
<INTEREST-EXPENSE> 36,543
<INTEREST-INCOME-NET> 52,356
<LOAN-LOSSES> 855
<SECURITIES-GAINS> 315
<EXPENSE-OTHER> 33,686
<INCOME-PRETAX> 26,667
<INCOME-PRE-EXTRAORDINARY> 20,031
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,031
<EPS-PRIMARY> 2.35
<EPS-DILUTED> 2.35
<YIELD-ACTUAL> 8.07
<LOANS-NON> 437
<LOANS-PAST> 2,492
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 312
<ALLOWANCE-OPEN> 11,038
<CHARGE-OFFS> 813
<RECOVERIES> 160
<ALLOWANCE-CLOSE> 11,240
<ALLOWANCE-DOMESTIC> 5,486
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,754
</TABLE>
